A major shift that shocks the world

A new broom sweeps clean!

It refers to Waller, the new chairman of the Federal Reserve.

At last night's press conference, Waller showed no mercy. Although, as the market expected, the interest rate remained unchanged, the hawkish stance was truly unexpected:

There may be an interest rate hike by the end of the year. No dot - plot and no forward guidance...

The market was in a complete panic without any suspense.

The three major U.S. stock indexes all declined, and the high - tech sector became the hardest - hit area.

Wasn't it said that the expectation of an interest rate hike had eased? How did it turn out like this?

01 How hawkish is Waller?

If the hawkishness of former Chairman Powell was like a gentle warning, like squeezing toothpaste, then Waller's hawkishness last night was a cold, rigid, and dimension - reducing strike with a strong flavor of institutional cleansing.

Just look at the four rigid hawkish bullets from last night's press conference, and you'll understand why the U.S. stocks took a nosedive last night:

Bullet 1: The voting result was 12:0, unanimously against a rate cut

Before the press conference started, some people still harbored illusions, betting that there would be dovish officials within the Federal Reserve to voice opposition or there would be a weak call for a rate cut.

However, the dot - plot and the voting result announced last night were 12 to 0, unanimously approving to keep the high interest rate between 3.5% - 3.75% unchanged!

Even more terrifying is that in the latest dot - plot forecast, 18 out of 19 Federal Reserve officials clearly predicted that "there will be at least one more interest rate hike" before the end of 2026!

Waller achieved absolute internal centralization of power at his first meeting, shattering all the dovish illusions on the spot and telling the whole world that the era of high interest rates will not only not end, but will even intensify.

Bullet 2: The inflation forecast was raised to 3.6% on the spot

This was the most nerve - wracking move for Wall Street institutional funds last night. Waller directly raised the core PCE inflation forecast for the end of 2026 from 2.7% estimated in March to 3.6% in the report!

This was Waller publicly slapping the face of the previous Federal Reserve.

He was essentially announcing to the whole network: "All the models you calculated before were wrong. Inflation has not been tamed at all. It is resurging at a high level."

When a Federal Reserve chairman admits that inflation is more stubborn than expected, it means that the denominator (discount rate) of future monetary policy will be stuck at a high level for a long time, directly siphoning off the long - term cash flow of technology stocks.

Bullet 3: The independence of the Federal Reserve is above all else

Last night, a reporter directly asked about the political pressure from the White House. Waller coldly responded: "The Federal Reserve's responsibility is to safeguard the long - term credit of the U.S. dollar and price stability. We have no obligation to pay for any short - term political elections or fiscal deficits."

He even announced on the spot the establishment of a Federal Reserve communication and institutional framework restructuring group, headed by himself, aiming to completely cut off the channels of political intervention.

Bullet 4: Faster than expected quantitative tightening (QT)

If maintaining the interest rate and the expectation of an interest rate hike are just verbal warnings, then accelerating quantitative tightening is like using a pump to draw blood from the market's capital pool.

Last night, he hinted that the Federal Reserve's current balance sheet is still too bloated. In the next few months, it will study further raising the monthly cap for reducing the holdings of Treasury bonds and MBS, that is, actively withdrawing U.S. dollar notes from the market.

Once the total amount of funds decreases, the leverage energy consumption across the network must be rigidly reduced. This is the fundamental reason why all kinds of funds were in a panic and rushed to de - leverage unilaterally at the end of the U.S. stock trading session last night.

02 What on earth does Waller want to do?

Some people may wonder that compared with Powell, Waller's hawkish stance is not weak, and he even talks about interest rate hikes, while Trump seems to be quiet. This doesn't seem right. Back then, Trump argued with Powell face - to - face about the rate cut. Logically, he should have thrown a tantrum!

Perhaps this is the mystery.

Of course, we are not Trump himself, so we can't penetrate his heart and see his true thoughts.

However, this doesn't prevent us from making some inferences from a bystander's perspective. It should be noted in advance that the views are for reference only.

There may be many possible reasons, but a relatively reasonable explanation may need to be viewed from a more long - term and macro perspective.

Let's first pose a big question: How big are the challenges facing the U.S. dollar today?

The answer is well - known to the world.

For example, the challenge from another major country's currency, including energy settlement and trade settlement;

The challenge from decentralized cryptocurrencies;

Central banks around the world are frantically hoarding gold and reducing their holdings of U.S. Treasury bonds;

The total debt of the U.S. government has exceeded $34 trillion;

......

We can all see these phenomena. The U.S. policymakers are certainly not blind. They see it clearer than anyone else, and it's their vital interest.

Since that's the case, they certainly won't sit idly by.

While the outside world is chattering and sneering, the policymakers at the Federal Reserve are quietly formulating countermeasures. There must be a lot of heated discussions within the Fed, but the outside world doesn't know until the moment when the reform measures are officially announced.

Among these measures, the most noteworthy is his core concept:

Reduce policy guidance for the market, downplay pre - commitments on the interest rate path, and focus more on the reform of the Federal Reserve's system, data system, and communication framework.

He may really believe that the Federal Reserve's core tasks, clearly stated in black and white, are only two: stabilizing prices and promoting employment. But what has the Federal Reserve been doing in the past few years?

It often talks about the stock market, such as dot - plots and forward guidance. In fact, it's just leaking secrets to stock speculators. As a result, stock speculators make money. But has the price been stabilized? Has employment improved?

This is simply a dereliction of duty. So he is just returning to what the Federal Reserve should do.

On a larger scale, in essence, Waller's reform is not about restructuring the U.S. dollar externally, but about rescuing it internally.

At his first press conference on June 17th, Waller established five institutional reform working groups in one go (including restructuring the Federal Reserve's communication mechanism, reducing the balance sheet, reforming the inflation framework, etc.).

What he wants to reform is the situation of the Federal Reserve's large - scale money printing, excessive market intervention, and frequent failures of forward guidance in the past decade.

In Waller's view of financial physics, the root cause of the U.S. dollar's crises, such as other countries selling U.S. Treasury bonds, hoarding gold, and turning to the RMB, is that the Federal Reserve has squandered the U.S. dollar's credit.

In the past, the Federal Reserve printed money recklessly, leading to high inflation. Currently, the U.S. inflation rate is still above 3%.

With such high inflation, the U.S. dollar notes are depreciating every day. Global central banks are not stupid, so they are forced to buy gold and Bitcoin.

Therefore, Waller's reform aims to reshape the U.S. dollar's credit foundation by reducing the balance sheet, tightening the money supply, and restoring the rigidity of interest rates.

This is not a new decoration of the Bretton Woods system, nor a renovation of the petrodollar. It's an urgent reinforcement of the U.S. dollar building with a cracked foundation.

Waller is willing to withstand the pressure from the White House and turn hawkish. He has seen that the U.S. dollar's credit is on the verge of collapse. He must use high interest rates and tough measures to attract the funds flowing to gold, Bitcoin, and the RMB back to the U.S. dollar system with high interest.

03 A new historical beginning

Does this mean a new historical beginning?

Yes!

This is definitely a grand beginning of a once - in - a - century great change.

But the script of this beginning may be different from what people think:

It's not a sudden explosion where the U.S. dollar collapses overnight and a new currency takes over. It's a great disintegration of the global credit system and the advent of a Warring States era.

In the future, the U.S. dollar will still maintain its strong position and will not completely abdicate like the British pound did in the past, because the United States still has the world's strongest technological innovation, military strength, and capital market.

However, Waller's reform will turn the U.S. dollar into a self - contained fortress currency. That is, by maintaining relatively high interest rates and reducing the balance sheet, it ensures the asset security of core allies and the U.S. domestic elite.

More importantly, in the future world, there will no longer be a single absolute monetary hegemony like the Bretton Woods system or the petrodollar. Instead, it will evolve into a tripartite Warring States currency matrix of the U.S. dollar settlement circle (Western technology, trade settlement, financial assets), the RMB settlement circle (Eastern trade settlement), and gold/cryptocurrencies (global safe - haven assets).

If you are making investments from a global currency macro perspective, you need to understand this tripartite pattern.

Let's return to Trump's perspective. A possible explanation for his tolerance of Waller is that Waller has convinced Trump that compared with short - term economic interests, such as a rate cut being beneficial for the return of the manufacturing industry, the reform he is doing is what will truly "make America (the U.S. dollar) great again."

Trump has always had an aspiration. In Chinese terms, it's "to bring peace to future generations."

To achieve "peace for future generations," one must take drastic measures. That's why there is so much chaos, turmoil, collapse, extinction, reconstruction, and rebirth.

Trump's intolerance of Powell may not just be because the latter refused to cut interest rates, but also because of his "old - fashioned style," mechanically and rigidly following past practices. What Trump wants to see is new people with new styles.

Waller, because his underlying concepts coincide with Trump's, has been given a pass.

Of course, with Trump's changeable and unpredictable style, whether there will be conflicts between the two in the future is another matter.

In fact, in this once - in - a - century great change, not only Trump, but almost all major - country leaders claim that what they are doing is "to bring peace to future generations."

This will be an extremely exciting era, but also an extremely cruel one.

This article is from the WeChat official account “Gelonghui APP” (ID: hkguruclub), written by Shen Peng, and is published by 36Kr with authorization.