How many ways are there for Walsh to stab Trump in the back?
The new Federal Reserve chairman, Walsh, may fundamentally oppose the Trump administration’s pursuit of low interest rates in his monetary policy stance.
Trump has repeatedly and openly advocated lowering interest rates to “1% or even lower,” with a clear attitude. However, according to Bloomberg columnist Clive Crook, Walsh has long maintained a hawkish stance, with core positions including shrinking the Fed’s balance sheet, abolishing forward guidance, and prioritizing inflation control—all of which conflict with Trump’s policy preferences.
Although Walsh adopted more cautious language and deliberately echoed the White House’s tone during his bid for the chairmanship, his underlying logic has never truly wavered. If Walsh acts according to his hawkish principles, investors will face a monetary policy path starkly different from the White House’s expectations: interest rates may not drop sharply, and long-term yields could even rise.
Walsh’s Hawkish Stance: Cautious About Forward Guidance, Clear Boundaries for QE
Walsh’s monetary policy stance has been consistent throughout his public statements and can be traced.
On the issue of forward guidance, he criticized the Fed’s reliance on the “dot plot” (SEP) and policy statements to convey the direction of interest rates in recent years, believing that such tools have limited significance now that rates are far from the zero lower bound. Essentially, he sees them as auxiliary tools for easing. Bloomberg’s view points out that this position coincides with the findings of renowned American macroeconomists Christina and David Romer’s recent comprehensive assessment—that the threshold for using forward guidance should be very high.
On quantitative easing (QE), Walsh holds a similarly critical stance. He believes that large-scale bond purchases may not only cause massive losses for the central bank but also, in effect, facilitate the government’s expansionary borrowing. He advocates for clearly defining the boundaries of QE and shrinking the Fed’s balance sheet—this is a typical hawkish stance.
Accommodating Language, Unchanged Core: Walsh’s Hawkish Rhetoric
During his bid for the chairmanship, some of Walsh’s statements appeared highly aligned with the White House’s positions on the surface, but were actually underpinned by different logic.
He once stated: Tariffs themselves should not push up inflation; if inflation rises because of them, the responsibility lies with the Fed. The credit for inflation retreating from its peak lies more with Trump’s economic policies than the Fed’s tightening efforts. The AI revolution may bring a leap in productivity, at which point the Fed should stimulate demand accordingly.
However, Bloomberg’s analysis notes that each of these viewpoints can be coherently explained within a hawkish framework. Tariffs are one-off price shocks—so long as inflation expectations remain stable, the central bank does not need to raise rates in response. If productivity truly rises, then demand expansion is justified.
In other words, Walsh’s statements accommodated the White House’s tone in wording, but the policy essence remained unchanged: still prioritizing inflation control, shrinking the balance sheet, being cautious about rate cuts—just using rhetoric the White House likes to hear to express hawkish positions.
The Dilemma After Assuming Office
Upon officially taking office, Walsh faces an ongoing struggle between ideology and political pressure.
If tariff uncertainties continue to push up inflation expectations, hawkish logic calls for rate hikes rather than cuts. If productivity gains have yet to materialize, prudent hawks will not ease policy prematurely but will wait for data confirmation. Meanwhile, he must also repair relations with other Fed policymakers, who were somewhat alienated during the nomination process.
Bloomberg’s view points out that Walsh said in a 2010 speech: “The only reputation central bankers should pursue is to be remembered in history books.” If he acts according to this, his policy path will be guided more by his own reputation concerns than by the President’s preferences. This means that Trump’s appointment might ultimately yield the opposite of his intentions.
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