The September 15-16 FOMC meeting is approaching, and the market's pricing of the probability of interest rate hikes has risen rapidly after the Jackson Hole meeting. The long-short debate has always revolved around "whether the August data will change the path of interest rate hikes." In the view of the Wmax macro research team, the core of this meeting is far more than a single interest rate hike, but the triple test of “policy credibility – economic data – political constraints” that new Chairman Warsh has faced for the first time since taking office. The market is still using the traditional "data → policy" linear framework to make predictions, but it has not realized that the Fed's reaction function, communication logic and constraints have all undergone profound changes under Warsh.

Signal from Jackson Hole: Discipline takes precedence over guidance, hawkish tone has settled

Warsh’s speech at the annual meeting of global central banks in Jackson Hole is a key anchor for understanding this policy cycle. He clearly acknowledged that U.S. inflation is still on the high side, and that the improvement in summer inflation data does not represent a meaningful improvement in the underlying trend. If it cannot confirm that inflation is falling fast enough toward the 2% target, the Fed "still has work to do." But at the same time, he did not directly give a commitment to raise interest rates at the September meeting, nor did he disclose a specific policy response function.

Wmax believes that the market has always been obsessed with finding a clear answer to "whether to raise interest rates or not" from speeches, and essentially has not gotten rid of its reliance on traditional forward guidance. Warsh's core policy philosophy is to replace commitment with discipline and replace single-point data with trend judgment. He positioned his speech as a "roadmap" rather than "forward guidance" and bluntly stated that the latter has been "outdated for too long" - this is not a vague statement, but the transformation of the Fed's communication paradigm that he actively promotes: to create a "quieter and more purposeful" central bank, allowing the market to return to pricing economic fundamentals, rather than following officials' speeches.

This is the underlying reason why the July policy conference was evaluated by the market as “the most confusing in recent times.” While the market is still waiting for a clear policy path, Warsh has dismantled the framework of forward guidance. Judging from internal strength, 3 of the 12 voting members at the July meeting opposed keeping interest rates unchanged, and the hawkish differences have become public; Warsh's Jackson Hole speech is essentially to unify the policy tone domestically and release the determination to fight inflation externally, rather than just a single policy announcement.

Data fog: the two-way pull between inflation resilience and employment downward revisions

The current market regards August non-farm payrolls and CPI data as the only winners and losers in September decisions, but Wmax believes that the complexity of the data level is far beyond a single monthly number, and there is a clear deviation in the market's perception of the truth of the data. From the perspective of inflation, the pressure presents a dual structure: on the one hand, overall inflation is still significantly higher than the 2% target year-on-year, and the situation in the Middle East continues to push up international oil prices. The average price of gasoline in the United States has soared by about 40% since the end of February. The risk of a rebound in energy-input inflation is still there, which is the core basis for hawks to advocate interest rate hikes; but on the other hand, the U.S. official will update the calculation method of the PCE price index later this month and is expected to further revise the inflation estimate, which means "de-inflation." The underlying processes may reveal themselves faster than the surface data.

Of greater concern is the job market's baseline revision. The latest data from the U.S. Bureau of Labor Statistics shows that in the year to March this year, U.S. non-farm employment is expected to be revised downward by 79,000, of which private sector employment is revised downward by as much as 178,000. The actual average monthly employment growth is only about 11,000, which is far lower than the strong level previously perceived by the market. The weak employment performance in retail, manufacturing, business services and other sectors indicates that demand-side erosion is occurring and the resilience of the job market is systematically overestimated. Wmax judged that Warsh has always opposed excessive focus on a single data point, so even if the August data is weak, it may not directly give up the idea of ​​raising interest rates; conversely, even if it is strong, it may not directly lead to an interest rate hike. His decision-making anchor is "underlying inflation trends," not monthly fluctuations. The market's current over-betting on single data is essentially a failure to adapt to the Fed's new reaction function.

Double Binds: Credibility Cliff and Political Reef

This is the dimension of this meeting that is most likely to be underestimated by the market. Wmax believes that Wash is currently standing on the dual precipice of credibility and politics, which together delineate the feasible boundaries of decision-making. From a credibility perspective, Warsh previously transparently sought the position of chairman of the Federal Reserve and continued to release a hawkish stance after taking office. The Jackson Hole meeting further strengthened the anti-inflation tone. If there is no action in September, the market will directly question the credibility of his hawkish remarks, forming a consistent expectation of "hard words but soft hands". This is extremely costly for Warsh, who has just taken office and is trying to rebuild the credibility of the central bank - as market observation concludes: not raising interest rates may be 100% economically correct, but it will make the market discount all his statements from now on.

From a political perspective, the U.S. midterm elections on November 3 are approaching, and political constraints are becoming apparent. Trump continues to press for "the lowest interest rates in the world," with long-term yields on $40 trillion in federal debt climbing to a 20-year high, and pressure on interest payments rising sharply. The White House and the Republican camp are worried that raising interest rates will further raise borrowing costs, hit voters' cost-of-living perceptions, and instead provide political leverage to the Democratic Party. Although the Fed maintains policy independence in name, the constraints of the political environment are real. The choice of holding on to no action at the July meeting itself already includes considerations of the political window.

Wmax pointed out that the market usually falls into the binary narrative of "the Federal Reserve is completely independent" or "policy is completely politicized", while the real game is always looking for a balance between the two. Warsh must use actions to maintain the central bank's credibility in fighting inflation while also avoiding excessive political impact during the sensitive election period. This is the core difficulty of this decision.

Asset Pricing Enlightenment: High Volatility and High Interest Rate Centers Parallel

Regarding the impact of this meeting on major asset classes, Wmax formed a clearer judgment than the market consensus based on the triple game framework:

First, market volatility will rise systematically regardless of whether interest rates are raised in September. Warsh's "no forward guidance" communication model will itself increase the expected fluctuation range. The marginal impact of economic data and officials' speeches will be amplified, and the "data-expectations" feedback loop will be shorter and more intense.

Second, the pattern of high and volatile U.S. bond long-term yields will not change. The underlying logic of expanding fiscal deficits, debt supply pressure, and rising term premiums is still there. Expectations of interest rate hikes will only further strengthen the high interest rate center; even if there is no interest rate hike in September, it will only delay the pace of policy tightening, rather than turning to easing.

Third, gold is still suppressed by expectations of interest rate hikes in the short term and is difficult to form a trend breakthrough. However, in the medium term, the stagflation combination of debt pressure, inflation resilience and marginal economic slowdown has not been destroyed, and the underlying support still exists after the price correction.

Overall, the current market is still playing a binary game around the "probability of raising interest rates," but has ignored the deeper significance of this meeting: This is the first time that Warsh's policy philosophy has faced a real market test, and it is also a landmark node for the Federal Reserve to shift from the "forward-looking guidance era" to the "discipline-oriented era."