Fidelity warns: Wosh faces the Fed Chair’s first major test, and volatility in the bond market may be triggered

Mars Finance News: On June 17, as the Federal Reserve is about to release its interest rate decision, multiple analysts at Fidelity Investments said that the new Federal Reserve Chair Kevin Warsh’s first major public appearance after the meeting could become a key factor triggering market volatility—especially in the bond market. Julian Potenza, a Fidelity fixed-income investment manager, said that after investors digest the policy statement and the economic forecast summary, Warsh’s communication would directly affect the market’s reaction. He said: “At present, almost nobody expects the Federal Reserve to take concrete action. However, because it is still unclear how Warsh will express his views, there is still room for volatility. After a new chair takes office, it is not unusual for the market to ‘test’ him.”

The market broadly expects the Federal Reserve to keep the policy interest rate range at 3.5% to 3.75%, while shifting the wording of the statement to a more neutral stance and ending the prolonged easing bias that has persisted since the rate cuts began in 2024. Some officials, noting that inflation is still at elevated levels, may release more hawkish signals through the quarterly “dot plot,” suggesting that rate hikes could exist in 2026 and even 2027. The U.S. Treasury market, with a scale of $31 trillion, has continued to see volatility recently. Against the backdrop of oil prices rising due to the Iran war, the yield on the 10-year U.S. Treasury has climbed from less than 4% before the conflict to above 4.4%. Pricing in the interest rate swap market has also shifted: expectations for rate cuts have been revised, and currently about an 80% probability is being priced in for a 25-basis-point rate hike within the year.

David DeBiase, a Fidelity fixed-income investment manager, said that the core divergence in the current market lies in Warsh’s policy inclination. He said: “What people are discussing is whether we will see the more hawkish Warsh from 10 years ago, or the more moderate version of today.” DeBiase also said that how Warsh explains his understanding of inflation is crucial. He noted that during the nomination and confirmation process, Warsh discussed “trimmed-mean inflation” as well as the inflation-mitigating effects brought by AI. The market hopes to learn more about the basis for these views and the process behind his judgments. (Jin10)