Shenwan Hongyuan says a Fed communication-framework reform would alter
asset-pricing drivers rather than the policy stance, shifting markets from
trading Fed rhetoric to trading data, scenarios and reaction functions. If the
Fed stops providing forward guidance, the front end would become more
data-sensitive while the long end would increasingly price term premium,
inflation credibility and fiscal risk. Macro trading would move from guessing
Fed wording to assess the conditions that would trigger policy moves. In the
near term the Fed is likely to hold: higher long yields and tighter financial
conditions could slow the real economy and reduce the urgency to hike, and a
trending down in inflation supports a pause. Markets should monitor the
inflationary impact of AI-driven investment and AI’s effects on supply.
