Warsh Expected to Side with Markets Over Trump on Rate Hike

Kevin Warsh, Federal Reserve Chair since May 22, finds himself caught between two opposing forces: financial markets anticipating a rate hike and President Donald Trump, who wants the Fed to cut or leave rates unchanged.

Economists expect that on Wednesday, Warsh will side with the markets, which have been pushing for higher interest rates due to stubbornly high inflation. A report last week showing inflation remains above the 2% target has sealed investors' expectations for a rate hike.

Warsh delivered a speech in August warning of the dangers of inflation and its potential need for higher borrowing costs. This week, the 10-year Treasury bond reached a three-year high of 5%, and mortgage rates have also risen.

If the Fed doesn't hike its key rate, it risks a replay of what happened in late July, when investors pushed up longer-term interest rates after the central bank left its key rate unchanged. Economists say that failing to raise rates could lead to higher long-term rates, mortgage costs, and business borrowing expenses.