In Washington, the Federal Reserve has just concluded another meeting where it opted to keep the federal funds rate target range unchanged at 3.50%–3.75%; a few days later, on April 30, 2026, Morgan Stanley, in an update report, outright pushed back its expectation for the first rate cut from the original fall of 2025 to the beginning of 2027: no changes throughout 2026, with rate cuts of 25 basis points each in January and March of 2027. The warning that “high rates would last longer” is no longer just a verbal caution but has become woven into Wall Street's baseline assumption. At the same time, U.S. Treasury Secretary Scott Bessenet publicly endorsed Kevin Warsh, stating he would bring a “new era” focused on accountability, efficient governance, and sound policy-making, while the current chair Jerome Powell emphasized at a press conference that he would not leave immediately and would continue to serve on the Federal Reserve’s board after handing over the chairmanship next month.

The path of interest rates and the power transition are intertwined at this moment. Morgan Stanley’s significant delay in rate cuts is interpreted as deep concern over inflation stickiness and cautious policy shifts, while Warsh being viewed as a signal for “the next chairman” extends this worry into a bet on future governance styles: does a Federal Reserve that places greater emphasis on accountability and soundness mean that combating inflation credibility and policy predictability will be weighted more heavily? Nick Timiraos, a reporter from The Wall Street Journal, pointed out after the meeting that the trajectory of interest rates and the power transition are both shrouded in uncertainty. Far-off in Hong Kong, the Monetary Authority, after the Fed kept rates unchanged, also opted to maintain the base rate at 4%, emphasizing market monitoring while admitting that there is “significant uncertainty” regarding the future path of U.S. monetary policy. From Washington to Central, global assets stand at the same crossroads: how will this dual game of policy path and power structure reshuffle the asset pricing coordinates for the next few years when the expectations of “higher rates for longer” coincide with the personnel reshuffling of the “Warsh era”?

Wall Street Hits the Brakes: Rate Cuts May Be Delayed Until 2027

If the Hong Kong Monetary Authority summarizes a distant anxiety with “significant uncertainty,” Wall Street provides a specific, month-by-month pessimistic timetable. Just after the FOMC decided to keep the federal funds rate target range unchanged at 3.50%–3.75%, Morgan Stanley on April 30 completely overhauled its interest rate path: previously, it aligned with mainstream consensus, expecting the Fed to cut rates by 25 basis points in September and December 2025, gently ushering in a “looser” cycle that could happen “next year”; now, the latest forecast has turned into—no changes throughout 2026, and only reducing rates by 25 basis points each in January and March of 2027, entirely pushing back the first rate cut by two years. This is not just a simple technical adjustment, but a sharp halt, transforming “turning next year” directly into “at least endure another three years.”

This drastic correction is interpreted by Morgan Stanley itself as deep concern over inflation stickiness and cautious policy shifts. In other words, in its model world, pricing pressures will not automatically fade as the market once hoped, and a Federal Reserve that is more concerned about credibility, and more fearful of “being caught off guard by easing too soon,” would choose to keep rates elevated for a longer duration. “Higher rates, lasting longer” is rising from a market catchphrase to a seriously considered baseline scenario: it does not mean it will definitely happen, but rather taking away the most comfortable optimistic path from the table, allowing investors to become accustomed to walking on a tighter interest rate rope for longer.

Under the dual suspense of power transition and unclear paths, this major revision from Wall Street seems to be pricing in a Federal Reserve “highly sensitive to early easing.” No one can conclude how the future Warsh era will unfold, but when “accountability, efficient governance, sound policy-making” become part of the official discourse, the market naturally links this to the notion that the new leadership may be less willing to make abrupt shifts while inflation is not fully under control. On the other end, the Hong Kong Monetary Authority is also reminding that U.S. monetary policy will ultimately still depend on inflation and employment indicators. Thus, from research reports to regulatory statements, the same signal is conveyed—before genuinely observing a marked turnaround in data, all hopes for rate cuts can only be tagged with “delayed, further delayed.”

Power Transition Imminent: Powell Hands the Baton to Warsh

As the expectation for “higher rates lasting longer” is systematically elevated, another narrative line in Washington has rapidly moved to the foreground: who will take over the Federal Reserve. Kevin Warsh is now nearly unanimously seen as the next chairman, and Treasury Secretary Scott Bessenet has publicly named and supported him, thereby directly elevating this power transfer, which was still in the “candidate game,” to a key variable influencing interest rate path expectations. Bessenet declared that Warsh would bring a “new era” to the Federal Reserve centered on accountability, efficient governance, and sound policy-making—when the term “new era” is uttered from the Treasury, what the market hears is not just a personnel change but a re-shaping of the temperament of the entire monetary policy framework.

The three keywords chosen by Bessenet itself serve as a response to controversies from the past few years. The so-called “accountability” has been interpreted by many observers as a need for decision-makers to bear clearer responsibility constraints when inflation deviates from its target, reinforcing the commitment to the target; “efficient governance” points toward a more compact, predictable decision-making process, minimizing external speculation about internal maneuvering; as for “sound policy-making,” in the current context of inflation stickiness and repeated delays in rate cuts, it naturally evokes a dual emphasis on combating inflation credibility and policy predictability—not promising quicker ease, but rather promising fewer surprises and clearer response functions. The “Warsh era” under such narrative is expected to present a Federal Reserve that places more emphasis on discipline and also emphasizes the credibility of forward guidance.

Alongside this “new era” discourse is the carefully orchestrated exit plan of Powell himself. At the latest decision-making press conference, he clearly stated that he would not immediately step down upon the transition but would continue to serve as a governor after handing over the chairmanship next month. On the surface, this appears to be a smooth institutional transition: the former chairman remaining at the table as a governor can provide experience and votes for the new chair during a phase when rates remain high, and inflation has not fully softened. However, in practical terms, the coexistence of the old and new teams for a period will inevitably bring subtle policy tension—on one side is Warsh, attempting to establish his style while embodying the labels of “accountability,” “efficiency,” and “soundness,” and on the other is Powell, striving to safeguard his legacy and the coherence of policies. As Nick Timiraos from The Wall Street Journal pointed out after the meeting, there exists uncertainty around both the trajectory of interest rates and the power transition itself, and a large part of this uncertainty arises during this transition period, which will bear the imprint of two generations of leaders.

Arrival of the Accountability Era: Rate Decisions May Be Harder to Eased

As “accountability, efficient governance, and sound policy-making” are elevated to labels for the new chair, interest rate decisions themselves are no longer just technical parameters but public examinations of the Federal Reserve's credibility. With inflation not yet fully back to long-term targets and employment not experiencing a cliff-like deterioration, coupled with the Monetary Authority in Hong Kong emphasizing the geopolitical situation pushing up oil prices, and its potential ambiguous impact on U.S. inflation, any premature transition to easing would be interpreted as a softening of the will to combat inflation. For a new administration entering under the banner of “accountability,” it is easier to be incentivized to emphasize policy predictability—better to “wait a bit longer” on rates than to face future questions of “why was there such an urgency to cut rates then.”

The latest FOMC’s decision to maintain the interest rate range at 3.50%–3.75% in such a context actually resonates with this governance narrative: the Hong Kong Monetary Authority has also made it clear that the future course of U.S. monetary policy will depend on inflation trends and employment market conditions, rather than the market's emotional expectations of “saving the market.” On April 30, 2026, Morgan Stanley simply revised its path forecast significantly in this direction—changing from betting on two minor cuts in 2025 to no rate cuts throughout 2026, with the first cut pushed back to early 2027, and viewing this change as reflecting deep concern over inflation stickiness and cautious policy shifts. This baseline scenario of “higher rates for longer,” discussed under the narrative of accountability in the Warsh era, actually appears more “politically correct.”

Within Morgan Stanley’s new framework, the market must choose among various interest rate worlds: if “no rate cuts in 2026, only minor adjustments in early 2027” becomes the main line, high rates will long suppress the central valuation of assets, and prices will rely more on profits and cash flows to “materialize,” while volatility will repeatedly magnify around geopolitical shocks and inflation data within the range; if inflation unexpectedly declines smoothly, and the Fed signals easing earlier than expected at the end of 2026, then long-suppressed risk assets may experience a round of valuation recovery and will also have to digest the short-term violent fluctuations of the policy transition window; in a less favored tail scenario, if oil price shocks significantly exacerbate inflation, even the blueprint for “two minor cuts in early 2027” may be forced to extend further, with the high-rate duration prolonged, putting financial assets to a dual test of re-evaluating both rate paths and risk premiums. For capital betting on the next two to three years, accountability in the Warsh era means not only watching the dot plot but also continuously reassessing the probabilities of these paths between every data fluctuation and geopolitical event.

High Rates Spillover: Hong Kong and the World Forced to Follow

The interest rate path continues to be rewritten by Wall Street models, yet high rates in the dollar have solidly pressed down on Hong Kong through institutional arrangements. The Fed's latest meeting maintained the federal funds rate target range at 3.50%–3.75%, and the Hong Kong Monetary Authority almost simultaneously announced that it would keep the base rate at 4%. Under the linked exchange rate system, this resembles an automatic transmission of gears: as long as U.S. dollar rates do not change, or are even perceived by the market as being “higher for longer,” Hong Kong has almost no room to independently pursue a path of easing. The Monetary Authority emphasizes it will “continue to closely monitor market changes and is committed to maintaining monetary and financial stability in Hong Kong,” while also acknowledging that the future trajectory of U.S. monetary policy remains highly uncertain, with inflation, employment, and the chain reaction of the Middle East situations pushing up oil prices potentially reshaping the strength of this transmission mechanism.

Over time, the so-called “following” shifts from a passive action to a reconfiguration of the entire market structure. The 4% base rate has elevated the floor price of Hong Kong dollar funds, and liquidity is no longer a readily available cheap public good but has turned into a cost item that needs careful calculation. Banks and borrowers are beginning to renegotiate risk premiums; local enterprises and cross-border funds are becoming more conservative in credit expansion and asset allocation, while high-leverage and long-duration stories are becoming harder to sustain. Through Hong Kong, this offshore dollar hub, high rates extend to a broader regional market—within a system highly interconnected with the dollar, what is tightening is not a particular country's monetary conditions but the entire financing chain priced in dollars, with risk appetite being continuously suppressed.

At the end of this chain, global risk assets, including cryptocurrencies, are forced to reassess. Morgan Stanley’s postponement of the first cut to early 2027 effectively inscribes a basic scenario of “higher rates for longer” into asset pricing models: discount rates rise, and risk-free returns remain high, leading traditional equity and bond valuations to be adjusted downward, and any asset category that requires discussions on growth and future cash flows must offer higher risk returns to retain capital. The cryptocurrency market also finds it hard to remain detached—ranging from institutional leverage, cross-market arbitrage, to on-chain credit expansion, each layer faces the reality of elevated financing costs and decreased tolerance for retracement. Capital frequently shifts between U.S. dollar rates and inflation data, and the “accountability” of the so-called Warsh era will ultimately be embodied in position reductions, repositioning, and stop-loss actions: under the prolonged shadow of high rates, risk assets are no longer just pursuing stories but are forced to reorder their survival sequences according to the Federal Reserve's timetable.

Rates Suspended at High Levels: What Signals Should Investors Monitor

When the latest FOMC chose to keep rates steady, firmly nailing them in the 3.50%–3.75% range, the market narrative of “multiple cuts starting in 2025” has already begun to waver; by April 30, Morgan Stanley has simply pushed the initial cut back to 25 basis points each in January and March 2027, with no movement throughout 2026, transforming “higher rates for longer” from a fearful scenario into a potential path written into the baseline script. Meanwhile, Powell announced he would stay on the board after completing the chair handover, while Bessenet described Warsh’s arrival as a “new era” centered on accountability, efficient governance, and sound policy-making—layering the power transition and interest rate path within the same timeframe has imbued the “Warsh era” with a high-rate new normal from the start, yet it is simultaneously labeled by Nick Timiraos as full of uncertainty, leaving the market to price while adjusting its narratives.

In this environment, what investors can truly latch onto are a few key signals. First, watch inflation and employment: every future piece of pricing and labor market data will be used to test whether Morgan Stanley's scenario of “no cuts in 2026” holds water; outside the U.S., the Hong Kong Monetary Authority has also made it clear that inflation trends and employment will be core variables for judging the trajectory of U.S. policy. Second, watch oil prices and geopolitical situations: Middle Eastern tensions push energy prices higher, and their evolving impact on U.S. inflation means any new conflict or easing will directly affect interest rate expectations. Third, watch the public communications and forward guidance from the new and old leadership at the Federal Reserve: from Powell to Warsh, every speech and the weight of wording in each statement relates to whether this “new era” is more dedicated to anti-inflation credibility or more willing to make room for growth. With rates temporarily suspended at high levels, both paths and styles are far from finalized; the task is not to bet on an outcome but to adjust durations, leverage, and risk exposures along these signals, keeping one's rhythm as close as possible to this continuously rewritten timetable.

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