Sep 17, 2026 · 5 min

Fed raises rates to assert independence from Trump

UBS On-Air: Paul Donovan Daily Audio 'The lesser of two evils'

The decision tests whether the Federal Reserve can demonstrate policy independence while delivering little immediate change to inflation or growth.

3 key takeaways

1The FOMC’s unanimous rate increase signals resistance to political pressure, particularly from President Donald Trump.
2Paul Donovan expects another increase to show the initial move was deliberate rather than accidental.
3The higher-rate decision is unlikely to materially affect inflation or economic growth in the near term.

Don't miss

Donovan’s argument that another rate increase could serve mainly to prove the first move was deliberate.

The brief

Paul Donovan examines the Federal Reserve’s unanimous decision to raise US interest rates, framing the vote as a public assertion of independence from political pressure.

The central tension is institutional: President Donald Trump’s pressure makes the Fed’s unanimous decision carry significance beyond the immediate rate change.

Donovan argues the Fed may raise rates again to demonstrate that the first increase was deliberate, turning a policy decision into a test of credibility.

The practical effects remain limited in the near term, with the move unlikely to change inflation or economic growth quickly.

What was said on this episode

11 statements · 3 positive · 6 negative · 2 neutral

Paul Donovanon US Federal Reserve rate hike votePositive0:20
The unanimous US rate hike vote signaled defiance toward political interference.
“It is hard to read the unanimous vote in favour of a US rate hike. as being anything other than a gesture of defiance at political interference.”
Listen at 0:20
Paul Donovanon US Federal Reserve rate increaseNegative0:42
The US rate increase rests on weak economic foundations.
“the rate increase rests on rather wobbly foundations”
Listen at 0:42
Paul Donovanon Federal Reserve second rate hikeNegative1:12
The Federal Reserve will likely implement a second rate hike to defend its first decision.
“the Fed will almost certainly have to do a second rate hike in order to prove that the first hike was not an economic mistake”
Listen at 1:12
Paul Donovanon US Federal Reserve first rate hikeNegative1:22
The first US rate hike was mistaken and will not reduce inflation.
“The first hike was an economic mistake and will do nothing to change inflation”
Listen at 1:22
Paul Donovanon US Federal Reserve rate hikeNeutral1:37
The US rate hike has not significantly changed bond yields.
“The move has not significantly changed bond yields.”
Listen at 1:37
Paul Donovanon Economic fundamentalsPositive1:57
Long-term economic fundamentals will ultimately prevail in markets.
“In the long term, fundamentals will win out”
Listen at 1:57
Paul Donovanon Yen currency interventionNegative2:06
Currency intervention cannot permanently prevent a fundamentals-driven yen decline.
“If fundamentals dictate a weaker yen, currency intervention can only be a temporary interruption”
Listen at 2:06
Paul Donovanon Bank of England interest ratesNeutral2:25
Markets expect the Bank of England to leave interest rates unchanged.
“The expectation here is clearly for unchanged rates.”
Listen at 2:25
Paul Donovanon UK price pressuresNegative2:41
UK price pressures do not warrant an urgent Bank of England rate increase.
“price pressures are not calling for a rush to raise rates”
Listen at 2:41
Paul Donovanon European Central Bank monetary policyPositive3:25
The ECB has not indicated it wants to cause a non-oil-economy recession.
“the ECB has not signalled an absolute desire to create a recession in the non-oil economy”
Listen at 3:25
Paul Donovanon Central bank response to oil-price supply shocksNegative3:32
A central bank can offset an oil-price supply shock only by creating a recession.
“Creating a recession would be the only way a central bank can really offset the effects of a supply shock on the oil price.”
Listen at 3:32

Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.