CITIC Securities: Walsh’s balance sheet reduction plan requires a long preparation period and will proceed at a gradual pace.

Walsh's statements demonstrate the tough balancing act he faces. On one hand, he needs to "appease" Trump to a certain extent, so he acknowledged Trump's authority to speak on interest rates; on the other hand, he must gain trust from the market and within the Federal Reserve, so he emphasized the Fed's mission of price stability and its independence. Although Walsh did not perform well when responding to questions from Democratic lawmakers, this has little impact on his chances of succeeding Powell. Whether Walsh can successfully pass the Senate Banking Committee vote depends on gaining the support of Republican Senator Tillis. We believe there is a high probability that Trump will make a deal and withdraw the investigation into Powell to help Walsh through the Senate vote. During the Q&A session, Walsh emphasized that he would not become Trump's "puppet," and the market leaned toward a hawkish trade. Walsh's ideas on reforming the Federal Reserve are more worthy of the market's attention, especially his suggestion that the Fed needs a new inflation framework and his criticism of the Fed's current forward guidance approach. Walsh stressed that the Fed should reduce its balance sheet and use interest rates as its main tool. However, we still believe that Walsh's balance sheet reduction plan will require a long preparation period, and the pace of implementation will be gradual.