The Fed’s new chair Huasu makes a stunning debut that rattles the market! Traders are betting on a rate hike in September, fearing there could be “two rate hikes” by the end of the year.

Federal Reserve Chair Kevin Warsh's first post-FOMC press conference on June 17th sent a comprehensive hawkish signal, triggering intense volatility in the U.S. bond market. Warsh did not provide any short-term interest rate guidance, emphasizing that the committee is "clear and consistent" in its commitment to the 2% inflation target, and openly acknowledged that "there is still work to do" in fighting inflation. Traders quickly repriced expectations, with CME data showing the probability of a rate hike in July surging from 8.9% before the meeting to 35.1%, and the market has fully priced in two rate hikes by the end of the first quarter of 2027.
(Background: Breaking! Trump nominates Kevin Warsh to lead the Federal Reserve, with June's rate cut probability rising close to 50%)
(Additional context: Fed new chair Warsh cautiously hawkish! Refuses to promise rate cuts, initiates "Fed reform," dot plot hints at rate hikes in 2026)

Table of Contents

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• Warsh's debut hawkish tone: no rate cut promise, reaffirms 2% target
• Market reaction: U.S. Treasury yields soar, rate hike expectations fully reprice
• Goldman warns: If inflation doesn't cool, rate hike cycle may start in September
• Fed reform underway: Five working groups reshape Fed operations

Kevin Warsh's first FOMC press conference after taking over the Federal Reserve shocked financial markets with an unusually hawkish stance. Unlike the dovish tone during Powell’s tenure, Warsh refused to offer any forward guidance, made no mention of rate cut prospects, and repeatedly emphasized that the committee will "spare no effort" to bring inflation back to 2%.

Notably, Warsh explicitly stated that he hopes financial markets "price assets based on real economic conditions, rather than trying to guess how Fed officials interpret data," and admitted hearing that many FOMC members believe "there is still work to do" in maintaining price stability. He also mentioned that AI technology could be the most significant economic transformation of his lifetime, with both opportunities and risks.

Warsh's debut hawkish tone: no rate cut promise, reaffirms 2% target

During a nearly one-hour press conference, Warsh issued multiple hawkish signals. According to the official transcript released by the Fed, Warsh said the Fed "is fully capable of achieving the 2% inflation target, and that is exactly what we aim to do," with the committee's stance "clear and consistent." He acknowledged that current inflation is mainly due to supply shocks but did not use this as an excuse to relax policy.

When asked whether he had spoken with Trump, Warsh declined to disclose details, only confirming he had met with Treasury Secretary Yellen multiple times, following the tradition of weekly meetings between Fed chairs and Treasury secretaries. He also stated that the press conference is an effective way to communicate with American families and businesses, but "did not commit to holding a press conference after every FOMC meeting"—a statement that further increased market uncertainty.

Market reaction: U.S. Treasury yields soar, rate hike expectations fully reprice

Warsh's hawkish stance immediately caused bond market turmoil. Bloomberg reported that traders sold off short-term U.S. Treasuries, leading to the largest single-day yield increase in over a year. Citibank Wealth Investment Chief Kate Moore said, "The message from policymakers is very clear—we do not expect rates to fall in the near term."

CME FedWatch data fully reflect this market shift: after the Fed decision, the probability of holding rates steady in July dropped from 91% to 64%, while the chance of a 25 basis point hike jumped from 8.9% to 35.1%, and the probability of a 50 basis point hike increased from 0% to 1%.

Looking further into the year, the changes are even more dramatic: the chance of no rate change by December halved from 38.2% to 14.2%, the probability of a 50 basis point hike doubled from 16.2% to 33.8%, the chance of a 75 basis point hike rose from 2.4% to 13.5%, and even a 100 basis point hike increased from 0.1% to 2.1%. The market has fully priced in two rate hikes by the end of the first quarter of 2027.

Goldman warns: If inflation doesn't cool, rate hike cycle may start in September

At the same time as the market reacted strongly to Warsh's hawkish signals, Goldman Sachs Vice Chairman and former Dallas Fed President Robert Kaplan publicly warned. Bloomberg reported that Kaplan said, "If inflation data does not show signs of cooling between now and September, it would be prudent for the Fed to act in September or this fall."

Kaplan further pointed out that persistent inflation indicates current monetary policy remains too accommodative. He emphasized a historical pattern: "The Fed's policy actions rarely happen in a single move; rate hikes often come in a series of two or three. So if you act in September, be prepared—for possibly one or two more hikes."

Futures markets have fully priced in this expectation. Traders have begun to fully digest the possibility of a 25 basis point hike before October—coinciding with the U.S. midterm elections. Interestingly, 30-year U.S. Treasury prices have risen and yields fallen, indicating market confidence that inflation will eventually be controlled in the long term, even as oil prices retreat and Iran-U.S. tensions ease, this trend remains unchanged.

Fed reform underway: Five working groups reshape Fed operations

In addition to signaling rate policy, Warsh announced the initiation of "Fed reform" during the press conference, appointing five working groups to review various operational processes of the Fed. The Federal Open Market Committee's (FOMC) individual forecasts show that half of the members expect a rate hike before the end of the year, aligning with market expectations. Warsh emphasized that if the Fed performs its duties well, it can "achieve strong economic growth, low inflation, and robust employment simultaneously."

For the cryptocurrency market, a hawkish Fed means liquidity conditions for risk assets will tighten further. Bitcoin initially attempted to rebound after the FOMC, but continued to face downward pressure amid rate hike expectations. If the Fed follows market expectations and begins a rate hike cycle in September or earlier, it will cause a fundamental impact on valuation logic for all risk assets.

This article is sourced from Bloomberg, Bloomberg, and the Federal Reserve reports, translated by Dongqu Editor Flip.