Warsh Expected to Hike Rates Despite Trump Pressure

Kevin Warsh, the Federal Reserve Chair, is facing a tough decision regarding interest rates. Financial markets are anticipating a rate hike, but President Donald Trump wants the Fed to cut or keep them unchanged. Economists expect that on Wednesday, Warsh and his fellow policymakers will side with the markets.

A high-profile speech last month by Warsh warning that inflation remains too far above the Fed's 2% target has largely boxed him into a rate hike. A recent report showing inflation is still stubbornly high has sealed investors' expectations of a rate increase. If the Fed doesn't hike its key rate, it risks accelerating a process where longer-term interest rates push up mortgage rates and business borrowing costs.

Warsh has faced this dilemma before when he delivered tough rhetoric on inflation in May but left the key rate unchanged in July. Investors pushed up longer-term interest rates after that decision, which is still ongoing. The 10-year Treasury bond rate reached 5% for the first time in three years this week.

While campaigning for the top job last year, Warsh said the Fed could lower interest rates. However, since getting the nod, the Iran war has sharply raised gas prices, lifting inflation to 3.7% in July, according to the Fed's preferred measure.