Institutional Restructuring of the Federal Reserve and Market Repricing

In the early hours of June 18, 2026, newly appointed Federal Reserve Chair Kevin Warsh presided over the first Federal Open Market Committee (FOMC) meeting since taking office. The meeting was decided unanimously—12 votes in favor and 0 against—to keep the target range for the federal funds rate unchanged at 3.50% to 3.75%, marking the fourth consecutive decision to hold steady and the first unanimous approval of a rate decision in nine months. However, what truly rattled the market was not the rate itself, but the all-round restructuring Warsh rolled out in terms of communication paradigms, institutional frameworks, and policy philosophy.

I. From “Pacifier” to “Repairman”: Warsh’s Strategic Shift

At his press conference, Warsh made clear that the Federal Reserve would usher in a “new chapter,” vowing to drive far-reaching reforms at what he described as the world’s most important central bank. This posture sharply contrasted with former Chair Jerome Powell’s era—during Powell’s tenure, the Fed had been mired in a swamp of communication excess and expectations management, while Warsh went straight for the line: “This is a broken institution, and I’m here to fix it.”

Warsh also enjoyed President Trump’s public trust from the moment he took office, with Trump repeatedly stating that Warsh would be granted full autonomy over monetary policy. This political space provided a rare window for Warsh’s reforms. Meanwhile, Warsh held a weekly, fixed breakfast meeting with Treasury Secretary Bessent, signaling that a new coordination mechanism was being built between the executive branch and monetary policy authorities—one different from the coordination seen in the Powell era.

II. Communication Revolution: The End of Statement Streamlining and Forward Guidance

Warsh’s first policy statement underwent a dramatic change: it was significantly cut down to around 130 words, far below the previously usual length of roughly 300 words. The style was reminiscent of the Greenspan era in the 1990s—when the former chair was known for being unwilling to disclose decision-making thinking to the public.

More substantively, the statement completely deleted the earlier wording about “further adjustments to interest rates”—a phrase long interpreted by the market as a signal of a tendency to cut rates. The statement likewise did not explicitly convey a bias toward raising or lowering rates, retaining only the concise factual line: “The Committee will achieve price stability.”

In his press conference, Warsh said bluntly, “Forward guidance is not something we should do.” He even joked that forecasts were written with “pencils with big erasers.” He argued that rigid forward guidance would constrain policymakers and, when economic data changes, can easily lead to misjudgments in policy. In his view, the current macroeconomic environment no longer fits this tool.

This shift means the Fed is moving from “path dependence” to “data dependence”—the market’s expectation anchor for the Fed is shifting from official guidance to economic data itself. As Warsh put it, the way financial markets operate should change from “relying on the Fed for a path” to “pricing based on economic data.”

III. The Absence of the Dot Plot and the Hawkish Consensus

Warsh made an especially emblematic statement: he personally did not submit interest rate path projections for 2026 and subsequent years, becoming the first Fed chair in 14 years to not submit a dot plot. He has long held reservations about both the dot plot and the Summary of Economic Projections tool, believing the dot plot is only a “scenario judgment” with “erasers,” not a commitment to future policy paths. He encouraged other FOMC officials to submit forecasts in the normal way, but chose not to participate himself.

Although Warsh was absent, among the 18 other officials who did submit projections, 9 expected the rate to be higher than the current range by the end of 2026. The dot plot showed: 1 official believed cumulative rate hikes of 75 basis points were appropriate; 5 believed cumulative hikes of 50 basis points; 3 believed cumulative hikes of 25 basis points; 8 believed rates should be kept unchanged; and only 1 believed cumulative rate cuts of 25 basis points were appropriate. The median projection for the federal funds rate at end-2026 jumped from 3.4% in March to 3.8%.

The Summary of Economic Projections also moved inflation expectations higher. The median 2026 PCE inflation forecast rose sharply from 2.7% to 3.6%, while core PCE rose from 2.7% to 3.3%; GDP growth expectations were lowered from 2.4% to 2.2%. Nick Timiraos, often dubbed the “new Fed whisperer,” commented that this was a “very hawkish” dot plot.

Behind this hawkish turn was the fact that the year-over-year increase in the U.S. CPI for May had climbed to 4.2%, the highest since May 2023. Energy prices rose 3.9% month over month and surged 23.5% year over year. The Producer Price Index jumped 6.5%, the fastest pace in more than a year. After the outbreak of the Iran conflict, energy prices rose sharply, and combined with tariff policies, they jointly pushed up inflationary pressures.

IV. Five Major Working Groups: Top-Level Design for Institutional Restructuring

The biggest highlight of this meeting was that Warsh unveiled a systematic operational overhaul for the Fed, announcing the formation of five specialized working groups:

First, the Monetary Policy Communication Mechanism Working Group will continue discussions on the form and function of Fed communications and propose reform recommendations, including possible adjustments to the SEP. This working group directly targets the area Warsh cares about most—he explicitly said he would study further cutting back guidance and even fully abolish the dot plot.

Second, the Balance Sheet Working Group will assess the advantages and risks of the current ample-reserves regime, the composition of the Fed’s balance sheet, and retain the possibility of substantially reducing the balance sheet to pre-2008 global financial crisis levels.

Third, the Macro Data Sources and Data-Dependence System Working Group aims to explore more timely and reliable sources of economic data. Warsh delivered sharp criticism of the reliability of nonfarm payroll data, calling it “a historical echo”—arguing it is only of reference value after the third revision.

Fourth, the Productivity and Labor Market Research Working Group will focus on the true state of the labor market and productivity growth. The statement has already added wording to the effect that “productivity growth and capital investment remain strong.”

Fifth, the Inflation Policy Framework and the Impact of New Technology Working Group will examine the reasonableness of the 2% inflation target and the potential impact of new technologies such as artificial intelligence on monetary policy.

Warsh said each working group will conduct an in-depth review around the Fed’s core missions of maintaining price stability and supporting employment. Detailed work plans will be disclosed later. At the same time, he reiterated that the 2% inflation target is the Fed’s core mission that will remain unchanged in the long run, and before inflation steadily falls back to the target range, the inflation framework will not be revisited for adjustment.

V. The Trouble with Data: The “Echo” of Nonfarm Payrolls and NBER’s Neglect

Warsh’s criticism of official statistical data was not without basis. Preliminary benchmark revisions released by the U.S. Bureau of Labor Statistics (BLS) in September 2025 showed that, for March 2025, the total number of nonfarm payroll employment would need to be revised downward by 911,000—an 0.6% drop. Net employment growth for all of 2025 was also sharply revised down from the initially reported 585,000 to 181,000. Employment growth was revised downward in 40 states. The average response rate for the monthly employment report survey was only 43%, far below nearly 61% in 2016.

Even more worrying, as of the 12 months ending March 2026, the total number of U.S. bankruptcy filings reached 591,850, up 11.9% year over year. Of these, business bankruptcy filings increased 11.4% (from 23,309 to 25,960), while personal bankruptcy filings rose 11.9% (from 505,771 to 565,890). In Q1 2026, cases using Subchapter V small business reorganization under Chapter 11 of the Bankruptcy Code surged 67% year over year. Since reaching a low of 380,000 in June 2022, total bankruptcy filings have risen for multiple consecutive quarters.

At his press conference, Warsh said one of his biggest concerns was that the “National Bureau of Economic Research (NBER) has failed in its duty to determine recessions.” He noted that QCEW data—covering more than 95% of U.S. employers—had shown that in the first, second, and third quarters of 2025, the U.S. economy lost net jobs, but the NBER had not yet made such a determination. This criticism points to a deeper issue: when the official data that policy-making relies on has systemic bias, the effectiveness of monetary policy is greatly weakened.

VI. Market Reaction and Controversy

The market’s reaction to Warsh’s debut was swift and intense. On the day the decision was released, U.S. stocks plunged sharply in the late session. The Dow fell by over 500 points (down 0.98%), while both the S&P 500 index and the Nasdaq fell by more than 1%. The CME “Federal Reserve Watch” tool showed the probability of a rate hike in October jumped to 60.7%. Two-year U.S. Treasury yields, which are sensitive to interest-rate expectations, surged to a 16-month high.

As of June 23, two-year U.S. Treasury yields were 4.198%, and the 10-year was 4.495%. The U.S. Dollar Index climbed continuously, boosted by safe-haven sentiment, reaching 101.37 on June 24 and setting a new high in more than a year. On the prediction market platform Kalshi, the probability of a Fed rate hike later in 2026 jumped from 35% to 57% around the period before and after the meeting. Technology stocks became the hardest hit area: the Philadelphia Semiconductor Index plunged nearly 8%.

There was clear division on Wall Street. Bob Michele, Chief Investment Officer at JPMorgan Asset Management, said outright: “Reduced transparency offers no positive value. The market will only fall into more speculation, more uncertainty, and rising risk premiums at the same time.” Some institutions, however, believed that the increased volatility objectively aligned with the Fed’s inflation-control objectives—if market expectations were too certain, capital would aggressively lever up for speculation, driving asset bubbles higher.

Guh, a former senior communications official at the New York Fed, noted: “The market reaction was greatly amplified by Warsh’s press conference. In that meeting, he emphasized the necessity of achieving price stability with a nearly ‘single-mission’ hawkish stance, but he offered absolutely no moderating discussion of the Fed’s strategy or reaction function.”

VII. Conclusion: A High-Risk Institutional Experiment

Warsh’s debut clearly mapped a path sharply different from the Powell era: less communication, less guidance, fewer commitments on forecasts—but more institutional restructuring and more determined inflation discipline. Through a series of moves—streamlining the statement, scrapping forward guidance, refusing to submit a dot plot, and setting up five working groups—he tried to reshape the Fed from an “expectations-management machine” into a “data-dependent decision-making institution.”

However, this strategy faces three major tests. First, can the market adapt to the new normal of “missing signals”? When the Fed no longer provides clear guidance on the interest-rate path, a systemic rise in market volatility may end up forcing policy intervention in return. Second, can Warsh maintain balance between a hawkish stance and political pressure from the White House? Although Trump has expressed support, whether that support will endure if markets continue falling or the economy weakens significantly remains unknown. Third, can the five working groups truly drive institutional change—or will they devolve into merely symbolic reform gestures? That will depend on Warsh’s execution strength and political wisdom over the coming months.

Warsh’s “repair plan” has already begun. But as he himself acknowledged, the Fed’s data has systemic flaws—from the 911,000 nonfarm payroll revision to the NBER’s silence on recessions. Implementing “data dependence” in a world where the data is still imprecise is, in itself, a high-risk experiment. Its outcome will not only shape how history judges Warsh, but will also reshape the operating logic of the world’s most influential monetary policy institution for the next decade.