Warsh Set to Side with Markets, Ignore Trump on Interest Rates

Federal Reserve Chair Kevin Warsh is facing pressure from President Donald Trump to keep interest rates low, but economists expect him to side with financial markets and raise them instead. On Wednesday, the Fed will decide whether to hike its key rate for the first time in three years, which would be a quarter-point increase to about 3.9%.

Warsh has largely boxed himself into a rate hike after delivering a high-profile speech last month warning that inflation remains too far above the Fed's 2% target and might require higher borrowing costs to bring it down. A report last week showing inflation is still stubbornly high at 3.7%, up from 2.3% in April, has sealed investors' expectations.

Economists say that if the Fed doesn't hike its key rate, it risks a replay of what happened in late July when Warsh provided little explanation for his decision to leave rates unchanged, leading to higher long-term interest rates and mortgage rates. A quarter-point rate increase would push the Fed's benchmark rate to about 3.9%.