Warsh Set to Side with Markets Over Trump as Fed Rate Hike Expected

Federal Reserve Chair Kevin Warsh is facing pressure from President Donald Trump to cut interest rates. However, economists expect him to side with financial markets and raise the key rate on Wednesday.

The decision comes after a speech last month in which Warsh warned that inflation remains too high and may require higher borrowing costs to bring it down.

A recent report showing inflation is still stubbornly high has sealed investors' expectations for a rate hike. 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 Warsh provided little explanation for his decision to leave rates unchanged.

A quarter-point rate increase 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, inflation has risen due to the Iran war and Trump's tariffs.

Economists say that if the Fed forgoes a rate hike, it would risk being seen as giving in to pressure from the White House, which could undercut its credibility with financial markets. Warsh might also have protection from his father-in-law, Ronald Lauder, who is a friend of Trump's and a billionaire donor to his campaigns.