The hawkish faction of the FOMC now makes up half the committee—will Waller become a "lame duck" chairman?

Federal Reserve Chair Walsh is facing a rare crisis of authority: as hawkish committee members gradually dominate the FOMC's discourse, if he cannot regain initiative in meeting communications, he may be forced to follow the majority rather than lead the direction.

According to the Financial Times, people familiar with Walsh's thinking revealed that if inflation data released in the coming weeks remains hot and market expectations for rate hikes continue to rise, he is prepared to support a rate hike at the September FOMC meeting.

The release of this signal is widely seen as a crisis management move by Walsh under media pressure after the July policy meeting.

Meanwhile, these sources also pointed out that current market-based long-term inflation expectations remain low, indicating that investors still have confidence in the Federal Reserve's commitment to maintaining price stability.

The problem is that this statement comes too late. At the press conference after the July FOMC meeting, Walsh refused to make any substantive comments on the U.S. economic situation and was subsequently marginalized by other committee members who spoke out successively.

Currently, a total of six Fed committee members tend to support raising interest rates under the conditions of persistently hot inflation data. For the market, the absence of the Chairman's voice has created a substantial information vacuum, prompting investors to reassess the rate hike path—the pricing of short-term interest rate futures for rate hikes this year has risen significantly.

Three Committee Dissents, Hawkish Faction Strengthens

At the July FOMC meeting, three committee members voted against keeping rates unchanged, advocating for an immediate 25 basis point increase in the federal funds rate to the 3.75% to 4% range.

Cleveland Fed President Beth Hammack argued that the current rate level is still not restrictive enough to curb inflation.

Minneapolis Fed President Neel Kashkari worries that a combination of supply shocks and demand recovery will keep inflation persistently high.

Dallas Fed President Lorie Logan’s reason is more direct—inflation has deviated from the 2% target for more than five consecutive years with no clear path downward.

In addition to the three dissenting committee members, two others who voted to keep rates unchanged have made it clear that they are close to joining the rate hike camp.

Fed Governor Lisa Cook stated that if there are no sustained signs of cooling inflation recently, she is "ready to take action" to raise interest rates; Philadelphia Fed President Anna Paulson also said that if core inflation remains stubbornly high, she would lean towards tightening monetary policy.

Additionally, Fed Governor Christopher Waller publicly stated in the past month that the Fed is at a policy crossroads and that if core inflation heats up again, a rate hike would be necessary.

Six Votes Are Enough—the Chair May Become Passive

The FOMC has a total of 12 voting members, and the institution does not provide for the chair to cast a deciding vote in case of a tie. This institutional detail is key to understanding the current power structure.

The three dissenting members mentioned above, plus the two who are close to the rate hike stance, and Waller himself, make up a total of six members who currently tend to support a rate hike if inflation data stays hot.

Once subsequent data triggers collective action by this camp, a rate hike decision could be passed without Walsh’s endorsement. At that point, Walsh would have only two options: either join the majority or isolate himself in the minority.

This scenario is not unprecedented. In August 2005 and June 2007, then Bank of England Governor Lord Mervyn King chose to stand with the hawkish minority on two occasions at monetary policy committee meetings and publicly stated that this move reflected the value of the committee as well as the equality of each member’s voting rights.

For Walsh, the lesson from this case is clear: even a central bank governor cannot always direct the committee’s course.

Market Pricing Has Signaled a Rate Hike

Another key controversy surrounding Walsh’s stance is whether the market signals cited by his team have been selectively interpreted.

Walsh respects financial market pricing and regards the stability of long-term inflation expectations as evidence that policy direction remains moderate. However, according to Financial Times citing rate expectation distribution data provided by the Federal Reserve Bank of Atlanta, the overall market signal is quite the opposite.

At the beginning of 2026, the financial market considered a single rate cut as the most likely scenario for the year. By the time Walsh took office, the market had viewed one rate hike as the base case, with an average expectation of about two hikes. By early August, however, there was no clear mode in the distribution of rate expectations, but the market’s conviction in one to two rate hikes this year had become stronger.

These changes in the short-term interest rate futures market coexist with stable long-term inflation expectations; as parts of the same market system, they cannot be interpreted separately. If the Fed truly considers market signals in policy decisions, the full current pricing picture points to one conclusion: rate hikes.