New Fed Chair's debut meeting sees worst S&P 500 drop since 1994

The US stock market experienced a significant downturn on Wednesday, with the S&P 500 index closing down 1.21%. This marked the worst performance on a "Fed Day", the day of a Federal Reserve interest rate decision, for a new Fed chair's inaugural meeting since 1994.

Investors are closely scrutinizing the policy direction under the new Federal Reserve Chair Kevin Warsh. In his first press conference following the Fed's decision to maintain interest rates, Warsh repeatedly stressed the importance of price stability. This emphasis has led markets to adopt a more conservative outlook on future interest rate cuts, contrary to earlier expectations.

Jeffrey Gundlach, CEO of DoubleLine Capital, noted that Warsh is signaling a clear priority for the Federal Reserve: price stability over the easing policies that some in the market had anticipated. This shift in expectation means that the anticipated cycle of interest rate cuts in the first quarter might not materialize as broadly as previously thought.

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Warsh is sending a clear signal to the market that the Federal Reserve will prioritize price stability, rather than adopting the easing policies that the market originally expected.

The market sentiment has begun to change, with several Fed officials hinting at the possibility of further rate hikes this year. Federal funds rate futures indicate that traders are now pricing in a potential rate increase as early as October. The Dow Jones Industrial Average also fell over 500 points, erasing all gains made before the Fed's announcement.

Beyond monetary policy, Warsh announced the formation of five working groups to review the Fed's operational model and streamline post-meeting policy statements, signaling a commitment to reform. Analysts suggest that while the specifics of these reforms are yet to be seen, a "new chapter" for the Federal Reserve has undoubtedly begun.

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Investors still need to observe what reform measures these working groups will ultimately propose, but one thing is already quite clear: a new chapter for the Federal Reserve has begun.