Wassh’s Sintra Debut: Four 2008 Veterans, an Encirclement in the "Battle Against Inflation"

June 29, Sintra, Portugal. The annual European Central Bank Central Banking Forum kicks off. Global central bank officials and economists flock to this coastal town west of Lisbon with the usual agenda: inflation, interest rates, geopolitics. But all eyes are not on today. They're on July 1. On July 1, four central bank governors share the stage. The lineup is routine—Fed Chair, ECB President, Bank of England Governor, Bank of Canada Governor. Half of the G7, same seating arrangement every year. Bloomberg nicknamed this table in its preview, unrelated to monetary policy: "A reunion of the generation of the 2008 financial crisis." The newly sworn-in Fed Chair Kevin Walsh took office six weeks ago and was in his thirties during 2008. With a background as a Morgan Stanley M&A banker, he became a Fed board member, trusted by Bernanke for his Wall Street expertise. After the crisis hit, he closely coordinated with Wall Street people, working together on solutions. Next to him, Lagarde was then French finance minister, acting as a firewall in the G7 and G20, determined to stop America’s crisis from spreading to Europe. Bailey was Chief Cashier of the Bank of England, leading the UK’s bank bailouts. Macklem was Canada’s deputy finance minister, representing Canada at the G7 and G20. The four who fought fires on the front line in 2008 now, 18 years later, sit atop their countries’ central banks. Their opponent then: liquidity drying up, bank runs, Lehman Brothers. Now, facing them across the same table: US CPI at 4.2%, Japan’s interest rates at a 31-year high, Korea’s central bank turning hawkish, Europe’s inflation stubbornly high. Same set of tools, but completely reversed direction. "Sent by the President to Cut Rates" Walsh was appointed by Trump. He was sworn in in May. Trump’s reason for picking him was clear: lowering rates. No need to check history—over the past few years, the President has repeatedly pressured his predecessor Powell on social media, complaining that rates are too high and holding back the economy. On June 17, Walsh chaired his first FOMC meeting since taking office. The result: unanimous vote to keep rates at 3.50%–3.75%. No surprise—the market had expected it. What was unexpected was what he did. He rewrote the Fed’s statement. The original 300+ words were cut to about 130. All forward guidance deleted. At the press conference, he said: “Forward guidance isn’t right for the current policy environment.” And: “This statement only gives you facts, the best judgment we can.” That wasn’t all. He announced five special task forces at the press conference: Fed communication (including reconsidering that quarterly economic projection summary which always leaves markets guessing), balance sheet, data sources, productivity & employment, inflation framework. He said: “Starting directly from first principles, asking tough questions, reviewing current practices, considering alternatives.” Then, the dot plot came out. Of the 19 FOMC participants, 18—just one exception—expect rates to either stay put or go up by the end of 2026. Only one expects a rate cut. Who was the one expecting a cut? Nobody knows. Because Walsh didn’t submit his own forecast. He’s the first Fed chair in over thirty years to leave his prediction blank in his first dot plot after taking office. CNN’s headline: “Walsh promises change, but his colleagues are eyeing hikes, not cuts.” Trump sent him to cut rates. But the data points in the opposite direction. 4.2% CPI is at 4.2%. May’s figure. Target is 2%. Core inflation isn’t as scary as the overall number—after removing food and energy, increases are much milder. This gives the FOMC a reason not to hike for now, but Iran’s war has pushed up the oil risk premium through the Strait of Hormuz, and if energy costs keep feeding into other prices, policy pressures in the second half will be unavoidable. Walsh said at the press conference: "We will achieve price stability. We have the ability and determination to reach the 2% inflation target. This commitment is firm, unanimous, unequivocal. This is the sentence we haven’t made clear enough in the past five years. We’re here to fix that." “Not made clear for five years”—directly dismissing the Powell era by name. After he spoke, rate futures markets priced in a greater likelihood of rate hikes by year-end. If inflation doesn’t make an unexpectedly downward move, Walsh might face two rate hikes in his first year. He was sent to cut rates. Harder Stances Next Door Walsh isn’t alone. On July 1 in Sintra, the people on either side of him spoke even tougher. Bank of Japan just raised rates to 1% on June 16. Vote was 7–1. Highest since 1995. After hiking, Kazuo Ueda said: “There is a risk inflation will overshoot the 2% target.” Summary of the meeting opinions was even more hawkish than the vote. After thirty years fighting deflation, Japan now faces the risk of inflation expectations unanchoring upward. The Bank of Korea released its semi-annual Financial Stability Report around the same time, with a noticeably changed tone. In the past, “inflation pressure” didn’t even make the top three concerns—exports and the exchange rate took priority. Now inflation is top. Lagarde’s ECB switched from a fast march between 2023 and 2025 to a data-dependent mode, but service sector inflation and wage growth have closed the door to rate cuts. She’s repeatedly said in press conferences: “We are not on a preset path.”—Meaning: Don’t assume rate cuts are coming. Bailey’s Bank of England is stuck with the G7’s most stubborn service sector inflation. Wage growth won’t slow down. He’s been criticized by markets for “moving too slowly” repeatedly over the past two years, and now he doesn’t want to repeat the mistake. Macklem was the first among the four to hike rates, and also the first to hint at a pause. But Canada’s resilient real estate market—with a wave of mortgage renewals boosting household spending—makes him reluctant to really turn dovish. No central bank dares claim “inflation is over.” Why Are They All Moving in the Same Direction? Iran is one reason. Increased shipping costs for oil tankers through the Strait of Hormuz are pushing up global energy prices. Not only the US—Japan relies heavily on Middle Eastern oil, Europe’s dependence on the Middle East has increased since the Russia-Ukraine war, and Korea’s manufacturing energy costs directly affect its export competitiveness. One regional conflict has global central banks sharing the same inflation anxiety. Wages are another factor. Core inflation is rising slowly everywhere, but wage growth hasn’t dropped decisively in any major economy. US hourly wages are still above 4%, and after peaking in 2024, eurozone negotiated wages are only sliding down very gradually. This reminds all central bank governors of the same thing—1970s stagflation. Back then everyone said “inflation is temporary,” until it turned structural. One more thing rarely discussed: 2028. Samsung and SK Hynix just announced investment plans totaling nearly 20 trillion Korean won, while global semiconductor leaders’ capital spending is surging to historic highs, and AI data center construction is outpacing even utilities. Once these projects enter full swing, the demand for steel, cement, electrical equipment, and labor will be released intensively within one or two years. Among the five task forces Walsh established, one is called “The Role of Productivity and Employment in the Era of Transformation.” What is he looking at? Not today. The Blank Dot Why didn’t Walsh submit his rate forecast in June? If he placed a dot for hiking, he’d be directly confronting the president who appointed him. If he placed a dot for cutting, the statement he just made—“price stability, unwavering”—would become empty words. He chose the smartest way: not to mark any dot. But Sintra isn’t Washington. This isn’t domestic US politics. Across him sit Lagarde, Bailey, Macklem—old comrades from 2008—as well as global economists and analysts. In this setting, he may speak more candidly than at the FOMC press conference. If his wording in Sintra carries even a touch more urgency—even by a single word—the global markets will instantly reprice. July 1, Walsh speaks. July 2, US June Nonfarm Payrolls. Mid-July, US June CPI. The June dot plot was intentionally left blank. On Sintra’s stage, he can’t leave it blank anymore. Risk Warning and Disclaimer The market has risks, and investment needs caution. 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