Trump hired Kevin Warsh to lower interest rates. Will he raise them instead?

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President Donald Trump had a clear goal when he appointed Kevin Warsh to lead the Federal Reserve: lower interest rates to spur economic growth. Now Warsh has signaled that the Fed could raise rates to rein in rising prices, putting him on course to clash with the president.

Raising rates before the midterm elections “would create an immediate showdown with the Trump administration,” said The New York Times. The president “has gone to great lengths” to get the Fed to lower rates and Warsh was “handpicked” for the job after an “elaborate audition process” shaped by Trump’s rate preferences.

The financial markets have demanded signs that Warsh is “serious about bringing inflation under control,” said the Financial Times. Warsh last month bent to those demands. Rising prices are “concerning,” and the central bank has “work to do,” he said at a Wyoming Fed meeting, per FT. Observers saw that as a signal that rate increases could come as soon as this month.

The Fed chairman is in a tough spot. The war with Iran has “sent global energy prices soaring,” which has “kept inflation from slowing,” Jonathan Levin said at Bloomberg. The AI spending boom has also “kept prices elevated.” A rate hike before the midterm elections “would surely raise the ire of the White House,” but it would be the “right thing” for Warsh to do in order to bring rising prices under control. It would also “bolster his credibility in the financial markets” if he was seen “putting American households above politics.”

What next?

There is “still significant uncertainty” as to whether Warsh will move to oppose Trump’s pressure campaign and raise rates this month, Jamie McGeever said at Reuters. In addition, the president might benefit if Warsh decides to ignore the White House and set his own course. Trump “doesn’t want higher interest rates,” but rising prices and higher borrowing costs “aren’t particularly palatable” to voters heading into the midterm elections.

“Not everyone is convinced” that Warsh will move to raise rates, said CNBC. The chairman’s comments at Jackson Hole were “only marginally” more hawkish on inflation than his previous remarks, Citigroup economist Andrew Hollenhorst said in a client note, per the outlet. And Trump administration officials maintain that a rate hike is not justified by the current evidence. Core inflation “has remained very, very restrained,” Treasury Secretary Scott Bessent said in an interview with CNBC.

Trump’s preferences remain clear. The Fed should lower interest rates “OR I’LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT,” the president said in a Truth Social post. The next Federal Reserve policy meeting is Sept. 15.