The Federal Reserve's new Chair, Kevin Walsh, confronts a major "credibility test" at the July policy meeting. Despite persistently high inflation, the Federal Open Market Committee voted 9-3 to keep the benchmark interest rate unchanged at 3.50%-3.75%.

This meeting witnessed the most dissenting votes since 2016, with the presidents of the Cleveland, Dallas, and Minneapolis Federal Reserve Banks all voting for a rate hike. This internal rift reflects serious concerns among policymakers about inflation.

Markets reacted sharply to the outcome. During his press conference, Walsh refused to provide clear guidance on the future path of interest rates and questioned the reliability of traditional inflation indicators, such as the personal consumption expenditures index. He also hinted that rising market interest rates have already taken on some of the tightening function. Subsequently, long-term Treasury yields surged, with the 30-year bond yield hitting its highest level since 2007, and U.S. stocks fell sharply.

Michael Feroli, Chief U.S. Economist at JPMorgan Chase, pointed out that Walsh's reluctance to specify the conditions for a rate hike "raises questions about his commitment to achieving the inflation target." Walsh, for his part, adhered to his anti-forward-guidance communication style, insisting the Fed "will achieve its 2% inflation target" and that policy decisions will not be swayed by market expectations.