The Fed’s independence test

Kevin Walsh, the newish chairman of America’s Federal Reserve, announced a quarter-point increase in the Fed funds rate to a range of 3.75 to 4 percent—the first rate hike since July 2023. The move was widely expected after Walsh telegraphed it in a speech at Jackson Hole, Wyoming, a few weeks earlier. But it was still a dramatic turn for a chairman only a few months into his tenure, who had spent his first meetings keeping rates on hold after a long cutting and holding cycle. And it came directly against the wishes of President Donald Trump, who has repeatedly called for lower rates.

Why Walsh raised rates—and what he emphasized

Conventionally, a Fed chair raising rates tells a story about inflation: the economy needs tough medicine. Walsh did some of that, but he focused more on growth. Domestic spending has been resilient, productivity growth is strong, and capital investment is robust. His message was that the American economy is doing so well that rates need to rise—a framing that may have been calibrated with an eye on the White House.

When pressed by journalists about Trump’s demands for a cut, Walsh offered nothing: “I’ve got nothing for you on a discussion with the president.”