Former Federal Reserve Vice-Chairman: Walsh's speech reversed the Federal Reserve's previous logic, and now the default choice is interest rate hike

On 30 August, Nick Timiraos of the Fed wrote that Federal Reserve Chairman Walsh had quelled some of his concerns about his anti-inflation strategy, but had also set an ambush for a greater test that might be faced in three weeks. If the Fed were to raise interest rates, it would have provoked the White House weeks before the midterm elections. If they do not move, they may rekindle the doubts that have been tempered by the statements. Two points in his speech on Friday indicate, inter alia, that the Fed may increase interest rates next month, the first being that it is difficult for Walsh to describe the current financial situation as restrictive. The second point was that better inflation data for the summer did not convince him that potential trends were improving. By Friday, the Fed ' s default choice was to remain in place unless the data were sufficient to support action. The former Vice-Chairman of the Federal Reserve, Cohen, stated that the Vosch statement reversed that logic. “He has changed the original assumption and now becomes that unless the data indicate that they are not necessary, they will increase their interest rates.” This means that the final decision will depend on the evolution of the situation in the period leading up to September, in particular the announcement of the August CPI on 11 September. Cohen stated that the Fed should not increase interest rates if the data showed that there was no need to act; if the data were robust, it could weaken the argument that inflation was falling back towards the Fed’s 2 per cent target. Kim Xian