Analyst: Hawkish Fed Shift Compresses Walsh's Room to Cut Rates

Eamonn Sheridan, an analyst at U.S. financial website investinglive, pointed out that the minutes from the Fed's April meeting show a clear change in the central bank's stance. The previous emphasis on responding "flexibly and promptly" based on economic data has been replaced by new language: persistently high inflation, coupled with uncertainty over the economic impact of the duration of the Iran conflict, may mean that policy needs to remain on hold for longer than previously anticipated.

The inflation situation facing new Chair Walsh is not purely an energy issue. Officials pointed out that high fuel costs are gradually being transmitted to shipping rates, airfares, and fertilizer costs, spreading inflationary pressures to a broader range of sectors. This transmission effect makes it more difficult to view inflation as a transitory factor and provides hawkish officials with more sustained justification for advocating higher interest rates or even rate hikes.

The market currently expects that if inflation does not decline, the Fed could resume rate hikes by late 2026 or early 2027. Walsh himself is inclined towards rate cuts, but this position creates a potential conflict with a significantly more hawkish committee; as Walsh's leadership style gradually emerges, this dynamic could increase volatility in FOMC internal communications. (Jin Shi)