Will Wosch’s “United Front” aim to cut interest rates?

The policy framework reform promoted by Federal Reserve Chair Wosch has entered a substantive phase. With the leadership rosters of the five working groups being formally unveiled on July 9, this internal reshuffle—viewed by outsiders as a “united front”—is moving forward along a clear three-step roadmap, ultimately perhaps pointing to the restart of the fourth-quarter rate-cut trade.

The Fed’s overnight release of the leadership lineup brought together heavyweight figures including former Bank of England governor Mervyn King, former Reserve Bank of India governor Raghuram Rajan, prominent Silicon Valley investor Marc Andreessen, Harvard University economics professor Greg Mankiw, and Nobel laureate economist Thomas Sargent, among others—spanning central banks worldwide, top academia, and the technology industry. The five working groups will each conduct assessments in areas including monetary policy communication, the balance sheet, economic data, productivity and employment, and the inflation framework, and will submit research reports by year-end.

Previously, the PCE statistical methodology adjustments announced by the U.S. Bureau of Economic Analysis (BEA) had already prompted warnings from institutions such as Goldman Sachs and UBS: the related changes will systematically suppress the readings of core PCE inflation. Before the working group roster was released, CITIC Construction Investment published a research report that stitched these developments into a complete policy narrative: personnel arrangements, a reshaping of the framework, and a shift toward a dovish stance—three steps, with the goal directly targeting rate cuts. The official launch of the working groups appears to be validating this judgment.

Five working groups unveiled, spanning central banks, academia, and Silicon Valley

According to the Fed’s July 9 announcement, each of the five working groups is jointly led by three experts from different fields and supported by Fed staff.

The monetary policy communication working group is co-led by Mervyn King, Peter Fisher, a professor at the Foster School of Business at the University of Washington and a former senior official at the U.S. Treasury, and Arminio Fraga, former governor of the Central Bank of Brazil and founder of Gávea Investimentos. It focuses on assessing how the Fed can improve its monetary policy communication approaches in an uncertain environment.

The balance sheet working group is led by Karen Dynan, a professor of economics at Harvard University, Raghuram Rajan, and Jeremy Stein, a former Fed governor and a professor of economics at Harvard University. It will conduct a systematic assessment of the costs and benefits of quantitative easing, quantitative tightening, and the long-term reserves framework.

The economic data working group consists of Raj Chetty, a professor of economics at Harvard University, Doug McMillon, former CEO of Walmart, and Kevin Murphy, a professor of economics at the University of Chicago. Its research direction is to improve the quality, timeliness, and usability of economic indicators.

The productivity and employment working group is the most technology-heavy arrangement in this reform. It is led by Marc Andreessen, co-founder of Andreessen Horowitz, Charles Jones, a professor of economics at Stanford University, and Asha Sharma, executive vice president at Microsoft. It focuses on assessing the impact of general-purpose technologies such as AI on productivity, the job market, and long-term growth potential.

The inflation framework working group consists of Greg Mankiw, Thomas Sargent, and William White, a former economic advisor at the Bank for International Settlements. It will re-examine the framework the Fed uses to analyze inflation drivers and formulate its policy response.

In his statement, Wosch said each working group will carefully assess whether the methods, analytical tools, and policy paths adopted by policymakers can be further improved. “The goal is very clear: to ensure that the Fed can carry out its duties at its best during this critical period.”

PCE methodology quietly adjusted; Goldman Sachs and UBS warn inflation readings will be lowered

Before the working group roster was released, another clue had already surfaced quietly.

BEA announced that it will make methodological adjustments to three subcomponents of the PCE price index, which will officially take effect on September 30, 2026, with historical data revised retrospectively. According to reports from the Chase the Trader desk, research reports published by Goldman Sachs and UBS argue that these changes will systematically lower the readings of core PCE inflation.

Among the three adjustments, the portfolio management services subcomponent has the biggest impact. Under the current method, it directly uses the industry’s PPI deflator and nominal spending. Because rising asset prices increase management fees, this subcomponent’s year-over-year growth over the past 12 months has reached 21.6%, making it the second-largest contributor to core PCE inflation. The new method will instead use total hours growth from employment surveys to measure “real services.” Since hours growth lags far behind the growth in the scale of assets, the calculated price increase will fall significantly. UBS economists, including Alan Detmeister, estimate that this change will reduce core PCE inflation year over year by about 0.21 percentage points.

For the computer software and accessories subcomponent, Goldman analysts such as Manuel Abecasis estimate that the new method will lower core PCE inflation year over year by 0.05 to 0.1 percentage points in May, and by 0.1 to 0.2 percentage points in December. The adjustment to the legal services subcomponent will cause inflation to rise slightly by about 0.04 percentage points in May, partially offsetting the downward effects of the first two items.

Taken together across all three changes, Goldman Sachs and UBS both believe the net effect will be a systematic downward shift in the readings of core PCE inflation. UBS more directly noted that the way the changes were selected “appears intended to reduce inflation,” and it warned that the lack of transparency in the new method means outsiders may not be able to independently verify the risk of data manipulation.

CITIC Construction Investment: a three-step roadmap, with the endpoint being rate cuts

Before the working group roster was released, CITIC Construction Investment researcher Qian Wei published a research report that incorporated the above series of developments into a complete policy framework and interpreted them.

The research report argues that after Wosch takes office, he faces multiple challenges, including a weak internal foundation within the Fed, questions about its independence, and differences in policy stance. Its core task is to complete the Fed’s “united front,” with a plan to advance in three steps.

First step (July): personnel arrangements. By using a working group appointment mechanism to balance the committee, the working groups are granted core policy status; subsequently, the working groups will take on part of the task of guiding market expectations.

Second step (Q3): framework adjustments. Traditional employment and inflation indicators fluctuate significantly in the short term and make consensus hard to form. The AI revolution provides Wosch with an opportunity to introduce a new supply-side framework. The core logic of the new framework is: upward productivity can rein in inflation, thereby creating room for monetary easing. CITIC Construction Investment cites cases from 1995 to 1998 to show that even though wage growth was high and the economy was strong at the time, the trend of labor productivity growth moved upward while inflation declined; the linkage between wages and prices was broken by the improvement in productivity, and the Fed ultimately chose to cut rates.

Third step (Q4): shift in stance. With groundwork laid by the first two steps, the Fed turns more dovish, and the rate-cut trade is set to restart. CITIC Construction Investment points out that the current situation is basically a mirror of 1999: labor productivity growth is climbing, wage growth is slowing, the technology sector is cutting jobs, and the job market is not tight. If employment and CPI data coordinate moderately, the working groups’ final conclusion will likely help the Fed shift toward a dovish stance, and the rate-hike trade will recede.

From the perspective of the timeline, as the working groups move toward implementation, it appears to confirm the internal logic of this narrative—personnel arrangements are already in place, while the framework adjustments and the reinterpretation of inflation data are being advanced in parallel.

The inflation framework working group will re-examine the methodology the Fed uses to analyze inflation; the economic data working group will study how to improve the quality of indicators; and the productivity and employment working group will provide academic support for the new supply-side framework. The combined efforts of the three will form a complete closed loop to pave the way for rate cuts.

Wosch said that in the United States, “major changes have taken place over the past generation, and the pace of change right now has been unprecedented.” The Fed needs to re-examine its policy tools and analytical methods. Each working group will submit research reports by year-end, at which point the outline of the policy framework adjustments will become even clearer.