Warsh Likely to Ignore Trump, Hike Interest Rates Despite White House Pressure

Federal Reserve Chair Kevin Warsh is facing pressure from President Donald Trump to cut interest rates, but economists expect him to side with financial markets and raise them instead. This would be the first rate hike in three years and push the Fed's benchmark rate to about 3.9%.

Warsh has already delivered a high-profile speech warning that inflation remains too far above the Fed's 2% target, and a recent report showed inflation is still stubbornly high at 3.7%. The Fed's preferred measure of inflation was 2.3% in April 2025, before Trump's tariffs.

Financial markets are anticipating a rate hike on Wednesday, with the 10-year Treasury bond reaching 5% for the first time in three years and mortgage rates rising as well. If the Fed doesn't hike its key rate, it risks being seen as giving in to pressure from the White House, which could undercut its credibility with financial markets.

Economist Diane Swonk wrote that 'a hike now could lower long-term rates later' by restoring faith in the 2% target and allowing the inflation premium to fall. However, failing to raise rates would tighten markets instead through higher mortgage rates and business borrowing costs.