The five major working groups have arrived—Washington’s “United front,” aiming for an interest rate cut?

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The policy framework reform promoted by Federal Reserve Chairman Walsh has entered a substantive stage. With the official unveiling of the five major working group leadership teams on July 9, this internal restructuring, which has been seen by outsiders as a “united front,” is advancing along a clear three-step roadmap—which, ultimately, may point toward a restart of rate-cut trades in the fourth quarter.

The list of leaders announced by the Fed overnight includes heavyweight figures such as former Governor of the Bank of England Mervyn King, former Governor of the Reserve Bank of India Raghuram Rajan, well-known Silicon Valley investor Marc Andreessen, Harvard University economics professor Greg Mankiw, and Nobel Laureate in Economics Thomas Sargent, spanning global central banks, top academia, and the technology industry. The five working groups will respectively evaluate monetary policy communication, the balance sheet, economic data, productivity and employment, and the inflation framework, with research reports to be submitted by the year’s end.

Previously, the methodological adjustment to PCE statistics announced by the U.S. Bureau of Economic Analysis (BEA) had already prompted warnings from institutions such as Goldman Sachs and UBS: The relevant changes will systematically lower core PCE inflation readings. Before the announcement of the working group lineup, China Securities (CITIC Securities) published a research report linking these moves as one coherent policy narrative: Personnel arrangements, framework reshaping, and a dovish shift—a three-step process targeted directly at rate cuts. The formal establishment of the working groups seems to verify this judgment.

Five Major Working Groups Unveiled, Lineup Spans Central Banks, Academia, and Silicon Valley

According to the Fed's announcement on July 9, each of the five working groups is jointly led by three experts from different fields, supported by Fed staff.

The Monetary Policy Communication Working Group is jointly led by Mervyn King, Peter Fisher (Professor at the Foster School of Business, University of Washington, and former U.S. Treasury senior official), and Arminio Fraga (former President of the Central Bank of Brazil and founder of Gávea Investimentos), focusing on how the Fed can improve policy communication amid uncertainty.The Balance Sheet Working Group is helmed by Harvard economist Karen Dynan, Raghuram Rajan, and Jeremy Stein (Harvard professor and former Fed governor), and will systematically assess the costs and benefits of quantitative easing, quantitative tightening, and the long-term reserve system.The Economic Data Working Group includes Harvard economist Raj Chetty, former Walmart CEO Doug McMillon, and University of Chicago economist Kevin Murphy. The group will study how to improve the quality, timeliness, and usability of economic indicators.The Productivity and Employment Working Group, the most technology-focused of the reforms, is led by Andreessen Horowitz co-founder Marc Andreessen, Stanford professor Charles Jones, and Microsoft executive vice president Asha Sharma. The group will focus on evaluating the impact of AI and other general-purpose technologies on productivity, the job market, and long-term growth potential.The Inflation Framework Working Group, composed of Greg Mankiw, Thomas Sargent, and former BIS economic advisor William White, will re-examine the Fed’s analytical framework for inflation drivers and policy responses.

Walsh stated in a press release that each working group will thoroughly evaluate whether the methods, analytical tools, and policy paths used by policymakers can be further improved, “with the very clear goal of ensuring the Fed can fulfill its duties in the best state during this critical period.”

PCE Statistical Methods Quietly Adjusted—Goldman Sachs, UBS Warn Inflation Readings Will Be Lowered

Before the working group announcement, another clue quietly emerged.

The BEA announced methodology adjustments to three components of the PCE price index, effective September 30, 2026, with historical data to be revised retroactively. According to “Tracking Desk,” research reports by Goldman Sachs and UBS indicated these changes would systematically lower core PCE inflation readings.

Of the three adjustments, the largest impact comes from the portfolio management services component. The current method simply uses the industry’s PPI deflator for nominal expenditures; rising asset prices have pushed up management fees, causing this component to rise 21.6% year-on-year over the past 12 months, making it the second-largest contributor to core PCE inflation. The new method will use total hours worked from employment surveys to measure "real service volume." Since hours worked grow much more slowly than asset values, the calculated price increase will drop significantly. UBS economists such as Alan Detmeister estimate this change will reduce year-on-year core PCE inflation by about 0.21 percentage points.

For the computer software and accessories component, Goldman analysts such as Manuel Abecasis estimate the new method will lower year-on-year core PCE inflation by 0.05 to 0.1 percentage points in May and by 0.1 to 0.2 percentage points in December. For legal services, the adjustment will slightly raise inflation by about 0.04 percentage points in May, partly offsetting the declines from the other two components.

All in all, both Goldman and UBS believe the net effect is a systematic downward shift of core PCE inflation readings. UBS is more direct in stating that the choice of adjustments “appears aimed at reducing inflation,” warning of insufficient transparency in the new methods and that the public will find it hard to independently verify the data, risking possible manipulation.

CITIC Securities: Three-Step Roadmap, the End Point Is Rate Cuts

Researcher Qian Wei at CITIC Securities released a report before the working group lineup was revealed, interpreting these moves as part of a comprehensive policy framework.

The report argues that since taking office, Walsh has faced multiple challenges: a shallow foundation within the Fed, doubts about independence, and divergent positions. His core mission is to complete a “united front” within the Fed, executed in three steps.

Step one (July): Personnel arrangement. Through the appointment of working group members to balance the committee, grant the groups a central policy role, with the groups later guiding market expectations.Step two (third quarter): Framework adjustment. Traditional employment and inflation indicators are volatile and make consensus difficult. The AI revolution gives Walsh a chance to introduce a new supply-side framework. The core logic: rising productivity controls inflation, creating room for monetary easing. CITIC Securities cites the 1995–98 case, where, even as wages rose and the economy was strong, the upward trend in labor productivity growth and a fall in inflation decoupled wages from prices, leading the Fed to ultimately cut rates.Step three (fourth quarter): Policy stance shift. With steps one and two laid down, the Fed turns dovish and rate-cut trades resume. CITIC notes that currently, productivity growth is climbing, wage growth is falling, tech layoffs are occurring, and the job market is not tight—“basically a mirror image of 1999.” If employment and CPI data cooperate moderately, the groups’ final conclusions are very likely to support a dovish shift, with rate-hike trades fading.

Judging by the timeline, the establishment of the working groups seems to confirm the internal logic of this narrative—personnel arrangements are done, and framework adjustments with a reinterpretation of inflation data are moving ahead in tandem.

The Inflation Framework Working Group will re-examine the Fed’s methodology for analyzing inflation; the Economic Data Working Group will study how to improve indicator quality; the Productivity and Employment Working Group will provide academic support for the new supply-side framework. These three, working together, form a closed loop paving the way for rate cuts.

Walsh stated that the American economy “has changed dramatically over the past generation, and the current rate of change is unprecedented.” The Fed must re-examine its own policy tools and analytical methods. Each group will submit a research report by the end of the year, by which point the contours of the policy framework adjustment will become clearer.

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