Late at night, the Federal Reserve remained silent, but changed the market

Source: Wall Street Intelligence Circle

Trading Walsh doesn’t mean trading his answers, but trading his silence.

After Walsh’s second appearance, the market once again returned to a dangerous state:

The U.S. stock market declined across the board. Although the decline was not significant, the result was still a drop. Meanwhile, the U.S. Dollar Index held firm at the 101 level, and the 10-year U.S. Treasury yield once again approached the 4.50% warning line.

His seemingly calm speech, however, fired three shots at the market.

First Shot (Dovish on the outside, hawkish at the core): Dove on the surface, but no real shift

Walsh made some dovish remarks. For example, inflation expectations have dropped, and inflation risks have lessened. On the surface, this sounds favorable to bonds, technology stocks, and gold, because it implies the Federal Reserve may not rush to raise rates—but you can’t just listen to that part. At the same time, he did not rule out a rate hike in July, did not provide any forward guidance on rates, emphasized that the 2% inflation target is nonnegotiable, the independence of the Federal Reserve is nonnegotiable, and that policies must be "fought out" in the meeting room. Therefore, this is not a dovish pivot, but rather keeping the options open—which makes the market uncomfortable.

Second Shot (Ending Forward Guidance/Dot Plot): The Fed will no longer give the market answers

Walsh hinted that the dot plot may gradually be de-emphasized or even reformed in the future. He also hopes that in the next 9 to 12 months, the Federal Reserve can rely more on real-time data, rather than depending solely on lagging government data and surveys. This means the Fed is rebuilding its reaction function. In the past, the market looked at the dot plot to know "where the Fed itself thought rates were headed." In the future, the market will focus on the data to guess "how the Fed will react to these data." The difference is significant: the dot plot anchored the market, while real-time data fuels volatility. The less the Fed communicates, the more data-driven volatility the market will see.

Third Shot (Normalization of High Interest Rates): Refusing to give the market rate cut fantasies

He emphasized the 2% inflation target and kept the possibility of rate hikes on the table, which will keep U.S. rates elevated. What the market is really trading is not what Walsh said—but what he refused to say. In the short term, Walsh’s comments appear to ease inflation worries, but they do not truly release liquidity.

Walsh didn’t tell the market what the next step will be, but he made it clear that in the future he won’t easily tell you what the next step will be. He offered some gentle words but at the same time took back what the market relies on the most: certainty.