Kevin Walsh has not released policy clues, but the market has already understood the answer

At the Sintra Central Bank Forum, the market intended to capture clues about the next policy direction of the Federal Reserve, but ultimately only came to a clear conclusion: Federal Reserve Chairman Kevin Walsh intends to significantly reduce the release of policy signals.

This is Walsh's first public appearance outside the United States since assuming the position of Federal Reserve Chairman. Faced with market expectations, he has always been unwilling to provide policy implications that investors want. He remained silent on the timing of future interest rate hikes and cuts, instead firmly implementing the new communication strategy announced at the first meeting of the Federal Open Market Committee (FOMC) in June: abandoning forward guidance, placing price stability at the core, and comprehensively reviewing the implementation framework of the Federal Reserve's monetary policy.

Although this speech did not provide immediate policy signals, it outlined the core logical framework for investors to assess future policies.

Completely abandon forward-looking guidance and never slack off

Prior to the Sintra European Central Bank Forum, there was widespread speculation in the market that Walsh, for the first time, spoke on stage with global central bank leaders such as ECB President Christine Lagarde, Bank of England Governor Andrew Bailey, and Bank of Canada Governor Steve McClelland, which may soften the tone of external communication.

But the fact is exactly the opposite. Walsh once again avoided discussing the future trend of interest rates and publicly defended the Federal Reserve's decision to abandon forward guidance. He reiterated his viewpoint after the June FOMC meeting: the central bank should not deliberately guide the market to predict a fixed policy direction.

Many investors had hoped that the Sintra Forum would release new policy guidance for the July FOMC meeting, and the signal conveyed by Walsh was very clear: the Federal Reserve will rely entirely on economic data to guide market expectations in the future, rather than verbal statements from the central bank.

Suppressing inflation remains the top priority of the Federal Reserve

Although Walsh avoids discussing subsequent interest rate adjustments, he has an unwavering stance on the Federal Reserve's inflation target. He said, "The core mission of the Federal Reserve is to maintain price stability," and emphasized that the current level of inflation in the United States is still "too high.

Walsh acknowledged that inflation expectations and the risk of inflation rising have eased in recent weeks, but he made it clear that this will not change the core policy objectives of the Federal Reserve. He added, "If anyone thinks the Federal Reserve will accept inflation levels above 2%, they will definitely be disappointed

This statement continues the hawkish tone released at his first FOMC press conference. Although he acknowledges that there has been some improvement in the inflation trend, there is no indication that the Federal Reserve is willing to tolerate long-term inflation above the target range.

He reiterated once again that restoring price stability is the top priority of the Federal Reserve.

Artificial intelligence becomes a core policy issue

Artificial intelligence is the only field that Walsh actively delved into for in-depth interpretation in this speech. He proposed that the United States is likely to become one of the biggest beneficiaries of the artificial intelligence revolution, and the current industry development is only in the initial stage of the first and second rounds. Meanwhile,EC ForexHe emphasized that the Federal Reserve has a responsibility to assess whether artificial intelligence will ultimately push up or down inflation.

The above viewpoint is highly consistent with the plan of the special working group established by the Federal Reserve after the June meeting, which includes a special group dedicated to studying productivity and employment. Walsh no longer simply sees artificial intelligence as a technology industry issue, but gradually incorporates it into the Federal Reserve's comprehensive evaluation system for long-term economic growth, productivity, and inflation.

In the short term, AI related analysis will not directly affect monetary policy, but in the long run, it may change the Federal Reserve's benchmark for measuring potential economic growth and equilibrium interest rates.

Continued promotion of institutional structural reform

In addition to monetary policy, Walsh once again clarified that internal institutional reform of the Federal Reserve remains a key task. He stated that the Federal Reserve will "open up a new development path" to optimize the policy-making process, and revealed that the heads of the newly established major policy task forces will be announced as early as next week.

In terms of balance sheet management, Walsh stated that the policy tone will continue and will not be significantly adjusted. Since his first month in office, his relevant views have not changed, while emphasizing that any future adjustments will be carefully evaluated and communicated clearly to the outside world in advance. He reiterated that the priority of balance sheet tools has always been lower than that of interest rate tools, stating that balance sheet operations are "almost within the scope of fiscal policy", and that interest rates are the core monetary policy tool of the Federal Reserve.

The speech was not unexpected, and the market only confirmed the existing policy tone

Before going to the Sintra Forum, investors had hoped that this first international public speech by Walsh would provide a fresh understanding of the policy response logic of the Federal Reserve Chairman. But throughout the speech, the market only confirmed the original position released at the June meeting.

Walsh still insists on weakening forward guidance; Always prioritize price stability; Judging the overall stability of the labor market and sufficient resilience of the supply chain; Believe that the United States has sufficient conditions to enjoy the dividends of artificial intelligence development. At the same time, he emphasized that even with continued political pressure, the policy independence of the Federal Reserve will not waver.

The entire speech did not substantially change the market's assessment of the overall policy outlook. The Federal Reserve sentiment index on Forex Street showed almost no fluctuations after the speech; Overall, it belongs to the moderate hawkish range, reflecting that the Federal Reserve's policy stance has only continued in the past without any substantial shift.

Ironically, this is precisely the core message released at this Sintra Forum. The market was originally highly tense, believing that every word spoken by Walsh had hidden policy implications; The most crucial signal that Walsh ultimately conveyed was that the Federal Reserve's new communication strategy remained as promised - reducing policy signals, increasing uncertainty about future policy directions, and relying more firmly on economic data rather than verbal guidance from the central bank to dominate market expectations.