Talk about the possible policy path and rhythm of Walsh. Two days ago, we talked about the policy proposition of Walker, the new chairman of the Federal Reserve nominated by Trump. But we also need to understand what we want to do, what we can do, and what we can actually achieve. There is a huge gap in each step. The political constraints of reality, market pressure, and internal constraints within the Federal Reserve will all affect the pace and actual effectiveness of Walsh's policy proposals. From the current perspective: "What can be done is much more important than what one wants to do, and the pace of policies has a greater impact on the market than policy proposals Walsh's policy proposals have been extensively discussed in the cited tweets, and here we delve deeper into what he can do and the possible pace. 1. First, let's return to an important question: why did Trump choose Walsh? Many people have talked about this point. Compared with Hassett's radicalism and loyalty to Trump, Walsh is relatively in the middle of the White House and Wall Street, and the past policy ideas can more reflect the independence. Just like a long article in the Wall Street Journal two days ago, which reported how Walsh won, the description of "Trump's focus on how to restore the market's confidence in the decision of the Federal Reserve when selecting the new chairman of the Federal Reserve" is more like looking for the beginning later, but at least let the market think that Walsh is not so close to Trump and has independence. But what does Trump fear most? In fact, what Trump is most afraid of is repeating Powell's mistake: once the nomination is approved, he will be further away from him, even against him. Trump has said this many times before, why choose Walsh? In addition to the fact that Wash seems to be more neutral, the relationship between Wash's father-in-law and Trump, as well as Washgen Besant's relationship (both have the same mentor and distinguished person Druckenmiller), should reassure Trump: after Wash takes over as the chairman of the Federal Reserve in the future, they have two channels and ties that can closely communicate or affect Wash's decisions. 2. What are the constraints faced by Walsh? 1) Mid term elections This is the biggest challenge faced by Trump this year. In the early year's prospect tweet, it was said that the US president's ruling party had a high probability of losing the mid-term election in history (more than 85%). In recent decades, the two special cases were the super prosperity of the Clinton era in 1998, and the George W. Bush era in 2002 (after September 11th, the American people should give the president the greatest power to fight terrorism). In fact, these are two lessons Trump will learn from this year's mid-term election: either the economy is good enough, or the geography is great enough to make the American people share the same hatred. Now it seems that Trump prefers the former. In recent months, many of his policies and measures have focused on the affordability of people's livelihood, prices and other issues. At least, the policy proposition and direction are aimed at affordability. Of course, Walsh is very clear about Trump's challenges. As a special assistant to the President for economic policy and executive secretary of the National Economic Commission during the Bush administration, he is very clear that political pressure is not an abstract concept, but a real variable to face every day. The first question mentioned above mentioned that he has two channels and ties of close contact with Trump, so it is hard to say that he has completely ignored Trump's demands after taking office. 2) The real pressure of market liquidity After the fourth quarter of the 25th year, the usage of ONRRP sound insulation reverse repurchase has basically decreased to zero, the SOFR-ONRRP spread has risen to a historical high of 25bps, and the usage of SRF has continued to be above zero. These signals indicate that the liquidity situation in the US interbank market has shifted from excess to just above sample. That is also why the Federal Reserve launched the RMP reserve management purchase operation in December, using technical means to improve market liquidity. This is the real pressure and constraint of liquidity 3) Return to the legal constraints of the scarcity reserve framework Walsh advocates that the Federal Reserve should return to the "scarce reserves regime" (a pre crisis model in which the Fed fine tunes reserve supply through open market operations to control the federal funds rate), which indeed requires significant adjustments or even a "complete rewrite" of the existing banking regulatory framework. This not only involves the switching of policy tools within the Federal Reserve, but also touches on international standards (such as Basel III liquidity coverage ratio LCR), domestic legislation in the United States (such as relevant provisions of the Dodd Frank Act, including stress testing and RLAP - Resolution Liquidity Adequacy and Positioning), as well as self regulatory constraints formed within banks over the past 20 years (such as LoLCR - Local Liquidity Coverage Ratio or similar internal liquidity management frameworks). These changes do go far beyond the unilateral authority of the Federal Reserve Chairman, as they involve congressional legislation, international coordination, and gradual adaptation of the banking industry 4) The scale of debt is still large and cannot be reduced The high debt and interest rate of the United States have put a lot of pressure on Trump. So now about 90% of the US fiscal rolling debt basically depends on issuing T-bills and T-notes, which are short-term debt. After all, the interest rate can be low, which is the main reason why Trump urged the Federal Reserve to cut interest rates. Cutting interest rates can lower short-term interest rates, but long-term bond rates cannot be lowered. In my opinion, the main reason is that the scale is too large and cannot be digested by the market alone. As for the narrative of "de dollarization" on the demand side, there are indeed some reasons that are not crucial. 3. What can Walsh change? 1) The starting point of the Federal Reserve's decision-making Powell's characteristics are flexibility, data dependence, and risk management, with the starting point being whether doing so can stabilize the situation. So Powell was able to turn the tide after the Q4 market crash in 2018, the unprecedented bailout in March 2020, the last-minute decision to raise interest rates by 75bps during the blackout period in June 2022, and the single decision to cut interest rates by 50bps in September 2024 due to an employment data, and so on. But what Walsh is more concerned about is whether this is something that the central bank should do. He is more concerned about roles, boundaries, and long-term institutional costs. You see, his repeated question is whether the Federal Reserve is doing too many things that should or should not be undertaken by the central bank.