Trump's Interest Rate Rant Gives Warsh Chance to Prove Independence
US President Donald Trump's recent comments on interest rates have left many baffled, but they may inadvertently provide an opportunity for Federal Reserve Chair Kevin Warsh to distance himself from the White House and bolster his credibility.
Trump has long called for sharp interest rate cuts, but this week he went further by threatening to halt trade with countries that run a deficit with the US unless the Fed lowers rates. However, even commentators typically supportive of Trump have struggled to understand the president's argument, which makes little sense in economic terms.
Warsh has so far maintained a tight-lipped response to Trump's comments, but he may be able to capitalize on the situation by pushing for a rate rise this month. This would not only underscore the Fed's commitment to its inflation target, but also help Warsh establish his own credibility and distance himself from the president.
TS Lombard economist Dario Perkins has pointed out that even a 25bps hike would be good PR for Warsh, killing off speculation about whether he is a 'sock puppet' of the White House. With core inflation above the Fed's target 2% now for 65 straight months and growth quickening, virtually no one thinks the Fed should be cutting rates right now.