Warsh Likely to Side with Markets Over Trump as Rate Hike Looms

Federal Reserve Chair Kevin Warsh is facing a difficult decision as he weighs the pressure from President Donald Trump against the expectations of financial markets.

The Fed is widely expected to raise interest rates on Wednesday, with economists predicting that Warsh and his fellow policymakers will side with the markets. This comes after Warsh delivered a high-profile speech last month warning that inflation remains too far above the 2% target and might require higher borrowing costs to bring it down.

The decision has been complicated by Trump's desire for lower interest rates, which could be seen as giving in to pressure from the White House and undermining the Fed's credibility with financial markets. Warsh's father-in-law is Ronald Lauder, a friend of Trump's and a billionaire donor to his campaigns.

A rate hike would be the first in three years and push the Fed's benchmark rate to about 3.9%. While campaigning for the top job last year, Warsh said the Fed could lower interest rates, but 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.

Warsh might have a measure of protection from his father-in-law's relationship with Trump, and his top economic adviser Kevin Hassett said that Trump would defend Warsh's independence above all.