Why is Walsh Suddenly in a Dilemma?🔥

September may be a real test of policy for Walsh, the new chairman of the Federal Reserve.

The Federal Reserve will hold an interest rate meeting from September 15 to 16.

Currently, market expectations for a 25 basis point rate hike have risen to about two-thirds, while just a week ago, this probability was only slightly over thirty percent.

The key to this change lies in the hawkish signals Walsh has recently released.

At the Jackson Hole meeting, Walsh clearly stated that if the Federal Reserve cannot confirm that underlying inflation is consistently returning to the 2% target, it means “there is still work to be done.”

Simply put:

Walsh has already put “rate hike” on the table.

But the real trouble is that the current economic environment does not provide him with an especially easy answer.

Not Raising Rates May Hurt the Federal Reserve's Credibility

This is the first issue Walsh is facing now.

At the Federal Reserve meeting in July, among the 12 voting policymakers, 3 advocated for a rate hike and voted against maintaining the current rate.

After Walsh further released hawkish signals at Jackson Hole, the market has begun to anticipate a rate hike in September.

This means that if there is ultimately no action in September, the market may raise a question:

Why did Walsh release such a strong rate hike signal before?

This is not just a rate decision.

It also involves the credibility of the Federal Reserve chairman's policy.

If the central bank consistently releases signals in one direction but ultimately chooses the opposite due to market pressure, then future market trust in the Federal Reserve's forward guidance may decrease.

This is also why some economists believe Walsh has now entered a somewhat awkward position.

A rate hike may harm the economy.

Not raising rates, on the other hand, could damage his credibility.

But the Question is, Does the U.S. Economy Really Need a Rate Hike?

Things are not that simple.

Because there are also reasons supporting “not raising rates.”

Currently, there are signs that consumer demand in the U.S. has started to cool down to some extent.

Conference Board Chief Economist Dana Peterson believes there is still a possibility of inflation naturally reverting, and the Federal Reserve could choose to maintain the current rate.

More importantly, the Federal Reserve will soon receive data from the non-farm payrolls and CPI for August.

If employment clearly weakens while inflation continues to decline, the necessity for a rate hike in September will naturally diminish.

Moreover, Walsh has previously opposed the Federal Reserve relying too heavily on forward guidance.

His logic is simple:

Economic data changes daily, and if the central bank locks in future policies too early, it can easily trap itself.

The problem is, this time it seems that Walsh has already pushed market expectations in the direction of a rate hike.

So now he himself seems to be “kidnapped” by these expectations.

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The Real Big Background: $40 Trillion U.S. Debt

If we only look at inflation and employment, this is just an ordinary monetary policy game.

But incorporating the U.S. fiscal situation changes everything.

The total U.S. government debt has reached about $40 trillion, and the fiscal deficit remains high.

At the same time, long-term U.S. Treasury yields are consistently high.

This means the U.S. government needs to pay increasingly higher interest costs for its massive debt.

So why has Trump always hoped for the Federal Reserve to lower interest rates?

The reasons are not hard to understand.

Lower interest rates can reduce financing costs for businesses and households, as well as alleviate the U.S. government's rising debt financing pressure.

Recently, Trump reiterated that the U.S. should have “the lowest interest rates in the world.”

But that’s precisely the problem:

The fiscal need for low rates may conflict with inflation's potential need for high rates.

The task of the Federal Reserve is to control inflation, not to solve the debt problems of the fiscal department.

This creates a very obvious policy conflict.

Why is Pressure from Trump Making Walsh's Job Harder?

There is another more sensitive issue:

The U.S. midterm elections.

On November 3 this year, the U.S. will hold crucial congressional elections.

If the Federal Reserve raises rates before the elections, the market could easily associate it with Trump's economic policies.

Because higher rates mean higher borrowing costs.

Mortgage, corporate financing, and government debt interest pressures will all be affected.

What Trump wants to see the most now is lower interest rates and lower financing costs.

Worse, gasoline prices in the U.S. have significantly risen following the conflict between the U.S. and Iran, with the average price still above $4 per gallon.

If energy prices continue to rise, inflationary pressures may re-emerge.

This means Trump wants to lower rates, but the Federal Reserve might have to maintain or even raise rates due to inflation.

This is not just a simple “hawkish or dovish,” but a direct collision between monetary policy and fiscal, political factors.

What is Really Important for BTC?

At this point, some may ask:

What does this have to do with BTC?

The relationship is actually very direct.

Because what ultimately drives the crypto market is global liquidity.

If the Federal Reserve raises rates, or if the market continues to increase expectations for rate hikes, then the liquidity of the dollar may further tighten.

Rising U.S. Treasury yields will also increase the risk-free return for global funds.

Funds will naturally reassess:

“Why should I bear the volatility risks of BTC?”

If the Federal Reserve ultimately chooses not to raise rates and even re-releases expectations for rate cuts, then the market's expectations for improving liquidity might heat up again.

This is also why what BTC really needs to focus on is not “What did Walsh say today.”

But rather:

In which direction are the Federal Reserve's policy expectations moving?

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September Non-Farm Payrolls and CPI Will Be the True Referee

The largest variable in the market is actually very clear now.

It's the upcoming U.S. economic data.

Especially the non-farm payrolls and CPI for August.

If employment significantly deteriorates while inflation continues to cool, then Walsh will have more reasons to delay raising rates.

Conversely, if employment remains resilient and inflation rises again, then the logic for a rate hike in September will strengthen further.

This is why we cannot simply think:

“The market has already bet on a two-thirds probability of a rate hike, so it will definitely happen.”

Market pricing will also change with the data.

For investors, what is more important is to observe:

Whether the market's expectations for a rate hike continue to rise after the data is released.

This is often more important than the data itself.

A Rate Hike May Affect More Than Just BTC

If September really sees a 25 basis point rate hike, the impact will not just stay within the crypto market.

First are U.S. Treasury yields.

If the market thinks the Federal Reserve has re-entered a tightening cycle, long-term U.S. Treasury yields may continue to face pressure.

Then comes the dollar.

Higher interest rate expectations usually enhance the attractiveness of dollar assets.

Next are global risk assets.

U.S. stocks, gold, emerging markets, and BTC could all be influenced by the reallocation of funds.

Conversely, if Walsh chooses to delay a rate hike and subsequent data continues to support the expectation for rate cuts, then risk assets may regain liquidity support.

So the real importance of the September meeting is not just those 25 basis points.

But rather, it will send a larger signal to the market:

Is the U.S. interest rate cycle truly turning back to tightening, or is it just experiencing a temporary policy oscillation?

The Three Pressures Walsh is Really Facing

When we break down the entire situation, it becomes very clear.

The first is inflation.

If inflation cannot stabilize back to 2%, the Federal Reserve will find it hard to easily cut rates.

The second is the economy.

If high rates have already begun to significantly impact consumption and employment, further rate hikes may push the economy into recession.

The third is political and fiscal.

Trump wants low rates, the U.S. government is burdened with about $40 trillion in debt, and high rates mean increasingly heavy financing costs.

These three forces are pulling Walsh in different directions at the same time.

Thus, what is really noteworthy about the September meeting isn’t simply “to raise rates or not.”

But rather:

Will Walsh ultimately prioritize protecting the Federal Reserve's credibility on inflation, or will he choose to leave more room for economic and fiscal pressures?

📌Web3 Mr. X: For investors, the September Federal Reserve meeting may be a very important macro observation window.

If Walsh chooses to raise rates, then what the market needs to be wary of is not the 25 basis points themselves but whether the Federal Reserve is re-entering a stronger tightening narrative.

If there is ultimately no rate hike, it cannot be simply understood as positive.

Because the market will also need to observe Walsh's statements in the following period, and whether the subsequent non-farm payrolls and CPI can support further rate cuts.

For BTC, what remains truly important is liquidity.

So moving forward, do not just focus on the words “rate hike.”

What should be paid more attention to is:

U.S. Treasury yields, the dollar index, Federal Reserve interest rate expectations, and U.S. employment and inflation data.

These variables are key to determining the pricing logic for global risk assets in the next phase.

—— I am Mr. X from Web3, with 6 years of growth in Web3, focused on Bitcoin, the crypto market, macroeconomics, and industry trends. If you wish to continually track the influence of BTC, ETH, HYPE, and macro data on the market, you can also follow the public account “Bitcoin Spring.” Understand the hot topics, insight the logic, and build your own judgment rather than just focusing on price fluctuations.

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