New Fed Insider analyst Nick Timiraos, in a Monday article, focuses on the policy moves of new Federal Reserve Chair Kevin Walsh during his first two months in office, analyzing that his reform ambitions are now sparking a genuine "family feud" within the central bank.

Timiraos notes that Walsh is simultaneously pushing five external expert working groups to conduct a comprehensive review of the Fed's operations while deliberately maintaining silence on the economic outlook and policy direction. This two-pronged approach has left his colleagues both intrigued and full of doubts.

From a broader perspective, Walsh faces a dual core challenge: on one hand, he must convince officials who have witnessed firsthand the policy-making process during the past 63 months of above-target inflation to acknowledge that old frameworks are flawed. On the other hand, his "talk less, observe more" style is creating fresh uncertainty both in the markets and within the institution.

More critically, the Fed is set to hold a policy meeting this week, with the outcome unusually difficult to predict. The market widely expects rates to remain unchanged, but renewed inflationary pressures have quietly raised the possibility of a rate hike. Walsh's silence strategy is facing its most direct stress test at this pivotal moment.

The Five Working Groups: Vanguard of Reform or Rubber Stamp?

Timiraos reports that Walsh's first major move came during a dinner on the eve of his first policy meeting on June 15, where he announced the formation of five external expert working groups to review key issues, including the Fed's communication mechanisms, inflation framework, and asset holdings. The 15 working group leaders include Nobel Prize-winning economists, former central bank officials, and corporate executives. The lineup is impressive, drawing positive feedback even from many skeptics.

However, the dinner atmosphere was not all applause. Fed Governor Christopher Waller immediately challenged Walsh, directly asking him: "What is the real purpose of these working groups?" His underlying question was sharp—"Tell me who you picked, and I can tell you the conclusions they'll reach."

The subtext of this remark is that Walsh is merely using external authority to endorse his own pre-existing views, packaging predetermined conclusions as "independent findings." St. Louis Federal Reserve Bank President James Bullard sided with Walsh, arguing that bringing in credible outsiders to drive organizational change is the right path, saying, "His direction is correct." The clash of these two voices reflects the true temperature of the internal reform debate at the Fed.

The "Talk Less" Philosophy: Protecting Judgment or Creating Chaos?

If the working groups are the "visible line" of Walsh's reform, then his deliberate silence is the most notable "invisible line" of the past two months.

Timiraos notes that during a congressional hearing, Republican Senator John Kennedy of Louisiana tried to press Walsh: "Faced with current inflation, would you choose to hold, raise, or cut rates?" Walsh sidestepped all specific options, instead pivoting to discuss the importance of the working groups. This evasive style has left both the market and his colleagues perplexed.

Walsh has his own logic: once the Fed issues forecasts, officials begin to favor evidence supporting those predictions while ignoring contradictory signals, forming a cognitive bias. In his view, staying silent allows the market to form its own judgment on the economy, rather than hearing an "echo" from the Fed. He told lawmakers that investors "are already complaining that I haven't given them the information they used to have," but his attitude is: "Go play the game, don't stare at the Fed." However, Morgan Stanley Chief US Economist Michael Gapen is not buying it. He argues the logic is flawed, saying, "The assumption that if the Fed doesn't comment on data, the market will independently interpret it is too far-fetched."

Internal Rift: Waller's Open Counterattack

Walsh's silence strategy faced its first challenge at the dinner, but the real public friction erupted four weeks later. In a speech to economists in New York, Waller directly attacked the "talk less" approach, stating, "In my many years as an economist, I have never seen any theory that says not telling people what you're thinking makes their lives better or makes markets function more smoothly." The weight of this comment is clear—Waller himself is a Trump nominee and was one of the final candidates for the chair position. His public statement signals that internal divisions can no longer be concealed.

Former Fed monetary affairs division director William English raised a more practical question: a chair who avoids discussing the economic outlook cannot explain the committee's decisions to the outside world and also loses the tools to steer the committee. He bluntly stated, "Chair Walsh will eventually find that he must speak about the economic outlook." That "eventually" may be this week's post-meeting press conference. If the Fed unexpectedly raises rates without explaining the subsequent path, the market could spiral into a self-fulfilling series of expectations for consecutive rate hikes, forcing Walsh to break his silence to "put out the fire."

Rate Outlook: To Hold or to Hike, Both Paths Are a Test

Timiraos believes this week's policy meeting is a concentrated test of Walsh's entire strategy. If the Fed chooses to hold rates steady, problems arise: Walsh has repeatedly stressed over the past two months that the Fed will not tolerate above-target inflation, but if it holds steady without providing any trigger conditions for action, the market will naturally question whether these tough statements have any teeth. Waller's words are quite direct: "Staring sternly at inflation, waiting for it to melt away under our fierce gaze, is not an option."

If the Fed chooses to raise rates, the challenges are equally significant. Without any forward guidance, the market cannot determine whether this is a one-time "preventive adjustment" or the start of a new rate hike cycle, potentially leading to panic pricing at any moment. Bullard believes Walsh is wise not to reveal specific operational intentions, but he also distinguishes between two scenarios: explaining the Fed's framework for responding to different scenarios is valuable, while over-suggesting a specific action is a different matter. The boundary between the two is the tightrope Walsh is currently walking.

Ultimately, there is an inherent tension between Walsh's reform ambitions and his silence strategy: reform requires persuasion, persuasion requires communication, and he has chosen the least communication method to drive the most significant change. Whether this "family feud" will end in the way he hopes might be revealed in the meeting minutes of the coming months.