"New Federal Reserve News Agency": Waller's Rate Hike "Has No Way Back", Trump's "Trust" Faces Test

Last year, Trump pressured the Federal Reserve to cut interest rates, but now the chairman he handpicked has been pushed by the market to the brink of a rate hike.

On September 14, Nick Timiraos of "The New Fed News Agency" published an article in The Wall Street Journal discussing the critical decision facing Federal Reserve Chairman Kevin Walsh: whether to announce a rate hike at this week’s FOMC meeting, as inflation remains stubborn and energy prices continue to rise.

Timiraos argues that Walsh, through a series of statements in recent months, has left himself with virtually no room to "stand pat." The August CPI data, which exceeded expectations, completely closed off the last escape route. At the same time, the White House's stance is ambiguous—officially claiming to "100% respect the Fed's independence," yet subtly implying they would not be happy about a rate hike.

With only seven weeks remaining until the US midterm elections, Walsh’s decision to raise rates would be a direct test of Trump’s months-long professed "trust" in him. However, if no hike is made, where does that leave Walsh’s credibility? Previously, Walsh had maintained a balance between the White House and the Fed by “talking less and avoiding provocation,” but after this meeting, silence will no longer be a shield.

How did Walsh corner himself?

When Walsh took over as Fed Chairman in May, he sent a strong anti-inflation signal at his first press conference in June, leading the market to expect more aggressive action. However, at subsequent FOMC meetings, he chose to keep rates unchanged without a convincing explanation—why stand still after such a strong statement?

As a result, long-term rates rose, not fell, during his remarks. Nick Timiraos wrote in the article that this was a sign that “investors were unsure whether his tough rhetoric would translate into actual policy.”

In August, Walsh attempted to correct this perception during a keynote speech. He noted, “There is little evidence that borrowing conditions are restraining the economy,” and the more favorable inflation data over the summer hadn’t convinced him that the underlying trend had improved. These remarks were, in fact, paving the way for a rate hike.

But what truly "closed the final door" was September’s CPI data. Nick Timiraos wrote, "The key consumer price indicator for August exceeded expectations, breaking the improving trend of the previous two months," and these two months of improvement were originally a preliminary validation of the Fed's own forecast. After the data was released, the probability of a rate hike this week quickly rose to around 90% in markets.

More importantly, the data was released during the Fed’s pre-meeting “blackout period,” when no official could speak out to “cool things down.” With the September 17 FOMC meeting approaching, Walsh’s room for maneuver has become increasingly limited.

What’s hidden behind the White House’s “100% support”?

Just ahead of this week’s meeting, White House National Economic Council Director Kevin Hassett publicly stated on television that inflation is improving and the Fed need not raise rates. He also stressed that Trump “100% respects Kevin Walsh’s independence” and will “100% support” any Fed decision.

These words sound gracious, but Hassett soon added: Trump would “not be very happy” about a rate hike.

He further argued that the Fed adjusting rates so close to the elections would "damage its reputation for staying out of politics." In his article, Nick Timiraos offered a reverse interpretation: if the White House openly called for rate cuts and the Fed, faced with widespread market expectations for a hike, held steady, observers would still suspect that Walsh was simply catering to the president who appointed him.

In other words, no matter what Walsh chooses, someone will question his motives. This is at the heart of the Fed’s independence dilemma.

Trump and the Fed: From “War” to “Ceasefire”

Last year, Trump waged “the most prolonged public pressure campaign against the Fed in decades.” He attacked former Chairman Powell for a long time, even threatening to file a fraud lawsuit against him. He installed economic adviser Stephen Miran on the Fed Board, who supported easier monetary policy in all six meetings he attended. Trump even tried to fire Fed Governor Lisa Cook—the first attempt by a president to remove a Fed governor. This was unsuccessful due to Supreme Court intervention, but the case remains unresolved.

Walsh’s arrival temporarily ended this “war.” Trump repeatedly stated that he “trusted Walsh to do the right thing,” allowing Walsh to avoid the kind of public attacks Powell suffered.

But Nick Timiraos points out that this “truce” is conditional. Raising rates seven weeks before the election will directly test how long Trump’s “trust” will last.

It’s worth noting that Walsh himself publicly criticized the Fed for cutting rates too slowly last year. When asked on CNBC whether that stance was influenced by the president who might nominate him, he replied: “There is a time for birds to change their feathers—you have to adapt to the times. It has nothing to do with this president.”

Walsh’s position: Independent, or Isolated?

In the face of various speculations from the outside world, Walsh has publicly emphasized independence.

"They chose an independent person to do an independent job—that’s exactly what I plan to do," Walsh told Congress during hearings this summer.

Nick Timiraos revealed another detail in his article: people who have spoken with Walsh say he believes Powell’s Fed made the situation worse by making some “unnecessarily confrontational remarks”—such as publicly describing how tariffs pushed up prices or vocally defending the Fed’s independence. Walsh’s strategy has been to “say less, avoid provocation.”

This low-key style has maintained peace with the White House to some extent. But if a rate hike is announced this week, silence will no longer be a shield.

How do economists view this?

The economic community is not unanimous about this rate hike.

Douglas Holtz-Eakin, former director of the Congressional Budget Office and a Republican economist, gave a straightforward assessment. He said that before July, he didn’t think Walsh needed to risk antagonizing the White House ahead of the midterms. Since July, however, Walsh’s remarks, plus the energy shock and the economic situation shaped by the AI boom, have left him “with no place to stand.”

"His hand is being forced," Holtz-Eakin said. "Kevin Walsh is a fine politician; he’ll have to figure out how to handle this."

He also predicted what might happen next: Trump and Walsh might tacitly agree to let Trump publicly criticize Walsh, who would endure it quietly, or Trump might simply change the subject and act as if nothing happened. "Trump will change the subject rather than directly confront, because he can’t admit he made a mistake," Holtz-Eakin said.

However, Michael Strain, a conservative economist at the American Enterprise Institute (AEI), holds a different view. He thinks the rate hike should have happened in July, but since it didn’t, making a move just weeks before the election is not timely.

"The unfortunate reality for the Fed is that it cannot ignore President Trump’s extreme hostility toward this important institution," Strain said. He believes investors would absorb “another pause” more quickly than the Fed could recover from a clash with Trump.

What’s next: After the ceasefire

How resilient is the principle of Fed independence in the face of political pressure?

The article notes that adjusting rates before or after elections is not without precedent—the Fed has made similar moves before political conventions in 1988, and also in 1994, 2004, 2018, and during Biden’s term in 2022. Historically, intersections between monetary policy and the election cycle are not rare.

But the current situation is unique, with Trump’s hostility toward the Fed well documented and Walsh’s every move being intensely scrutinized.

Holtz-Eakin’s assessment may be the most pragmatic: whatever the outcome, Walsh needs to show he’s making decisions based on economic data, not political pressure.