Fidelity Warning: Powell Faces First Major Test as Fed Chair, Bond Market Volatility Could Be Triggered

BlockBeats News, June 17th - As the Federal Reserve is about to announce its interest rate decision, several analysts at Fidelity Investments have stated that the first major appearance of the new Fed Chair, Kevin Warsh, after taking office could be a key factor triggering market volatility, especially in the bond market. Fidelity's fixed income investment manager, Julian Potenza, said that Warsh's communication style will directly affect the market response once investors digest the policy statement and economic projections summary. He stated: "Currently, almost no one expects the Fed to take actual action, but since it is still unclear how Warsh will express his views, the market still has room for volatility. It is not uncommon for the market to 'test' the new Chair after taking office."

The market generally expects the Fed to maintain the policy rate range of 3.5% to 3.75% and to shift to a more neutral stance in its statement, ending the continuous dovish trend that began in 2024. Some officials, due to persistently high inflation, may release a more hawkish signal through the quarterly "dot plot," implying the possibility of rate hikes in 2026 or even 2027. The $31 trillion U.S. Treasury market has recently experienced continued volatility. Against the backdrop of the Iran war raising oil prices, the 10-year Treasury yield has risen from below 4% before the conflict to over 4.4%. The pricing in the interest rate swap market has also shifted, with expectations of rate cuts being revised, and currently there is about an 80% probability betting on a 25 basis point rate hike this year.

David DeBiase, Fidelity's fixed income investment manager, stated that the core divergence in the current market lies in Warsh's policy orientation. He said: "What everyone is discussing is whether we will see the hawkish Warsh of ten years ago or the more moderate version we see today." DeBiase also said that how Warsh articulates his understanding of inflation is crucial. He mentioned that during the confirmation process, Warsh discussed "trimmed mean inflation" and the inflation-mitigating effects of AI. The market hopes to further understand the basis of these views and the process of his judgment formation. (Jin10)