Over the past decade, investors have become accustomed to looking to Federal Reserve statements, the dot plot, press conferences, and speeches by Fed officials for clues about "what comes next." However, at this forum, Warsh made one thing very clear: the Federal Reserve will look at the data, but it will not hand the market the answers in advance. In addition, I believe his remarks revealed the following seven key signals.

The first signal: Federal Reserve independence. Warsh explicitly stressed that the Federal Reserve remains an independent central bank and will not change its policy objectives because of political pressure. This statement comes against a clear backdrop. President Trump has consistently wanted the Federal Reserve to cut interest rates, while the White House has also sought lower financing costs to support economic growth and asset prices. Since Warsh was nominated by Trump, markets had at one point worried that he would adopt a more dovish stance after taking office. However, in Sintra, he made his position clear from the outset: the Federal Reserve will not lower its inflation standards simply because the White House wants cheaper financing.

The second signal: There is no room for negotiation on the 2% inflation target. Warsh said that if households, businesses, and financial markets believe the Federal Reserve will accept inflation above 2%, they will be disappointed. This was a firm and highly significant statement. It effectively tells the market that the new Chair will not exchange greater tolerance for inflation in return for short-term economic growth, nor will he quietly redefine the 2% target as a flexible range. US inflation rose to 4.2% in May, still far from the Fed's target. At present, the Federal Reserve's greatest concern is not a short-term slowdown in the economy, but rather that markets may begin to question whether it is still committed to bringing inflation under control.

The third signal: Warsh is unwilling to provide forward guidance. He did not say whether the Fed would raise interest rates in July, nor did he indicate whether any action would be taken in September. He also refrained from outlining how many rate hikes or cuts could occur this year. When asked whether rates should be increased, he chose not to answer directly, emphasizing instead that such decisions should be discussed privately by the policy committee. This approach is consistent with his long-held skepticism toward forward guidance: the more a central bank says, the more markets treat its words as commitments; once the data changes, the central bank risks becoming constrained by its own previous statements.

Another point worth noting is that Warsh is not alone in holding this view. Similar remarks from European Central Bank President Christine Lagarde, as well as officials from the Bank of England and the Bank of Canada, all point to the same trend: major central banks are rethinking the communication strategy of providing excessive explanations and advance guidance. A common theme emerging from the Sintra Forum was that central banks should give markets fewer "scripts" and retain greater flexibility to adjust policy according to changing economic conditions.

The fourth signal: Inflation risks have eased, but it is too early to celebrate. Warsh acknowledged that inflation risks have declined somewhat in recent weeks and that inflation expectations have also moderated. Lower oil prices, resulting from easing tensions in the Middle East, have indeed reduced some of the pressure on the Federal Reserve. However, he was careful to emphasize that lower risks do not mean the inflation problem has been solved. Inflation remains too high, and the Federal Reserve has not yet completed its mission.

Therefore, this speech cannot simply be categorized as either hawkish or dovish. It can be described as hawkish because Warsh reaffirmed the 2% inflation target, rejected the narrative supporting rate cuts, and did not rule out further rate hikes. However, calling it dovish would also be inaccurate because he did not actively advocate for immediate rate hikes and acknowledged that inflation pressures have eased recently. A more accurate assessment is that Warsh is returning the Federal Reserve to a data-dependent approach—but not the kind of data dependence the market prefers. Rather than reassuring markets in advance, he is making fewer commitments and allowing for greater uncertainty.

The fifth signal: The July meeting remains uncertain. The Federal Reserve's benchmark interest rate currently remains within a target range of 3.50% to 3.75%. Markets had previously believed that the next move would more likely be a rate cut. However, since Warsh took office, market expectations have shifted. According to reports, expectations for a July rate hike have increased. Although this is still not the market's consensus view, it is enough to show that investors are no longer comfortable treating rate cuts as the default outcome.

The sixth signal: Warsh has incorporated artificial intelligence into the inflation framework. This is a perspective that deserves close attention. Over the long term, AI may improve productivity, thereby lowering unit costs and easing inflation. However, in the short term, investment in AI data centres, semiconductors, electricity, cooling systems, and related infrastructure could drive up the prices of capital goods, energy, and certain services. In other words, AI is not simply an anti-inflation technology. At this stage, it may also represent a demand and investment shock.

This is also where a potential difference could emerge between Warsh and the White House. White House economic advisers are more inclined to emphasize AI's productivity gains and argue that higher interest rates are therefore unnecessary. The Federal Reserve, by contrast, must simultaneously consider short-term demand, price transmission, and inflation expectations. If AI investment continues to support employment, equity market wealth effects, and corporate capital expenditure, it may not immediately help reduce inflation. Instead, it could keep the economy running hotter than desired.

The seventh signal: Internal reform at the Federal Reserve will continue. Warsh said that the Federal Reserve is establishing multiple working groups to study AI, productivity, data, communication frameworks, and the longer-term operation of monetary policy. According to Axios, the membership of these working groups could be announced soon, with their findings expected before the end of the year. This indicates that Warsh is not merely changing the way the Federal Reserve communicates—he also intends to change the way it operates.

From a market perspective, the most immediate impact is that trading interest rates will become more difficult. In the past, markets could trade around nuances in the Federal Reserve's messaging. Now, Warsh is weakening that trading approach. Going forward, employment, inflation, oil prices, wage growth, and overall financial conditions themselves will become increasingly important. If the Federal Reserve no longer helps markets prioritize which indicators matter most, traders will have to make those judgments on their own. For US Treasuries, this means short-term yields are likely to become more sensitive. As long as inflation does not return clearly toward 2%, markets will struggle to confidently price in rate cuts. For the US dollar, Warsh's remarks are, at least in the short term, unlikely to support a significant weakening because the Federal Reserve continues to maintain its anti-inflation stance. For US equities, the picture is more complex: AI investment and economic growth continue to provide support, but valuations must now contend with a Federal Reserve that is far less willing to reassure markets in advance.

Looking ahead, there are three sets of data worth watching. First, whether US inflation in June and July continues to moderate, particularly core inflation and services inflation. Second, whether the labour market remains resilient. If employment and wage growth stay strong, it will become more difficult for the Federal Reserve to shift toward monetary easing. Third, whether oil prices and geopolitical tensions in the Middle East continue to ease, as energy prices have once again become an important driver of US inflation expectations.

Overall, Warsh's core message at the ECB Forum was clear: the Federal Reserve will not yield to political pressure, will not abandon its 2% inflation target, and will no longer provide the market with extensive forward guidance as it has in the past. For asset prices, this means investors should avoid becoming overly committed to rate-cut trades. For the US dollar and US Treasuries, what will truly matter going forward is not what direction Warsh signals, but whether inflation, employment, and oil price data give him sufficient reason not to raise interest rates.