Foreign media reports that Citadel Securities recently commented that under new Chairman Warsh, the Federal Reserve's policy style has shifted from a focus on inertia and forward communication to a more proactive approach. The firm believes the market should no longer interpret the Fed's previous accommodative communication framework, and the next move is more likely to be an interest rate hike.

The July meeting is seen as a potential source of action.

Citadel points out that while the June meeting kept interest rates unchanged, the subsequent statements were noticeably tighter. The statement reiterated the commitment to price stability while raising core PCE inflation forecasts for this year and next, leading to differing interpretations of the "holding rates steady" stance in the market.

The agency classifies the July meeting as an "active meeting," believing the Fed may take direct action at that time. Its baseline scenario is three rate hikes of 25 basis points each in September and December 2026, and March 2027.

• Core PCE forecast rises to 3.3% in 2026.
• Core PCE forecast rises to 2.5% in 2027.
• The baseline scenario is three interest rate hikes over the next two years.

Policy thinking shifts from inertia to proactivity

The article argues that this round of changes is not only reflected in the interest rate path, but also in the decision-making approach. Citadel states that the Fed under Warsh's leadership places greater emphasis on addressing inflation early on, rather than stabilizing market expectations through long-term forecasts.

According to their calculations, if 3% is taken as the neutral interest rate, and considering the current extent to which inflation deviates from the target, the policy interest rate should fall between 4.25% and 4.50%. This level roughly corresponds to the result after three interest rate hikes.

Citadel also noted that if the Fed had taken tightening measures earlier, the risk of runaway inflation would have decreased; and once price pressures subsided, subsequent policy shifts could be more swift. This is the core reason for his optimism regarding the Fed's ability to respond proactively.

The dollar and interest rate curve may be affected.

At the market level, Citadel expects a more hawkish and proactive Fed stance to benefit the dollar and potentially alleviate concerns about runaway long-term inflation. Correspondingly, the yield curve may flatten further in the interest rate market.

The agency also noted that volatility in short-term US Treasury bonds may increase. This is because the Fed has reduced its advance communication regarding the future path of the Treasury market, leading to greater uncertainty surrounding short-term meetings. In contrast, extreme risks in long-term US Treasury bonds may decrease, as the market will have greater confidence that the Fed is willing to promptly suppress inflation.

Regarding the stock market, the article argues that hawkish policies will still exert pressure, but if the Fed acts sooner, the risk of being forced to raise interest rates significantly in the future will actually decrease. Following this logic, while the pressure on risky assets is more direct, the path may be more controllable.