Today I want to explore a question: How will the Federal Reserve's system change with the arrival of the Walsh era? The most troublesome part of the policy framework of Walsh in this picture is not whether it leans towards eagles or doves, but rather that it has brought the Federal Reserve into a very tight state: On the interest rate side, it leans towards dovish, on the balance sheet, it leans towards eagle, emphasizing independence on the lips, but in reality, it cannot completely cut off from Trump. At the same time, it also wants to weaken forward guidance and reduce the market's dependence on the Federal Reserve's "spoilers". Whoever sits in the position of Federal Reserve Chairman today can no longer make choices solely around inflation and employment as they did in the past. Walsh, this old official, obviously knows this: He cannot publicly talk about tough interest rate hikes because Trump doesn't like to listen; We can't just talk about quick interest rate cuts, otherwise Congress will see that this is just a tool sent by the King of Understanding? So the safest statement is: interest rate cut+balance sheet reduction, interest rates can be lower, but the balance sheet should be smaller. This is actually the biggest difference between Walsh and Powell—— Although Powell has often wavered in recent years, his core logic has never changed: market expectations cannot get out of control, so the Federal Reserve must constantly communicate, revise, and guide. But Walsh is clearly more averse to the Fed's excessive market guidance, which is why he proposed to weaken forward guidance, reduce the impact of the dot matrix, and even publicly stated that he prefers "chaotic meetings". This change is actually quite dangerous: Over the past decade, the most valuable asset of the Federal Reserve has not been interest rates themselves, but expectation management. Everyone assumes that the Federal Reserve will ultimately save the market, so they dare to overvalue, increase leverage, and hold risky assets for the long term. And Walsh's policy framework will break all of these, but the problem is that many asset prices, fiscal structures, and financial stability in the United States have become dependent on this model, and it is difficult to say whether such a bold move will lead to a backlash. Let me explain my deduction of the Walsh route. I think the market will have three stages: one ⃣ In the first stage, the market first trades the expectation of interest rate cuts. The US stock market, gold, and BTC all like the phrase 'lower interest rates', especially for risk assets, which will first absorb the dovish half of the story. two ⃣ In the second stage, the market began to reflect the pressure of reducing the balance sheet. Long term supply of US Treasury bonds is not being taken up, term premiums are rising, liquidity is not as wide as expected, and technology stocks and high valuation assets will begin to realize that interest rates have come down, but it is even harder to make money. three ⃣ In the third stage, the market will reprice the credibility of the Federal Reserve. If Walsh wants both independence and cooperation with Trump; I want to both cut interest rates and shrink my balance sheet; Wanting to suppress inflation while also stabilizing assets is highly likely to end up with the saying: 'I want everything, but nothing is easy to do.'. So currently, I don't really believe that Walsh can completely change anything. Maybe he's not right, maybe Walsh suddenly became a god and can take us directly to 200000! The only thing that can be certain is that it will be harder to trade than during the Powell era! Image from: Jin Shi