Warsh's Rate Hike Decision to Test Credibility Amid Trump Inflation Record

US Federal Reserve Chairman Kevin Warsh must decide how to follow through on higher interest rates last week, a move that could impact President Donald Trump's inflation record. The decision will be closely watched as it may indicate whether Trump has failed to contain inflation and will not get the Fed's help in lowering borrowing costs.

Warsh spoke at the Kansas City Fed's annual Jackson Hole conference on Friday, stating that higher rates may be needed to curb inflation stuck above the central bank's 2% target. This move was seen as a strong signal from the US central bank's policy committee and could mean a rate hike later this month.

Analysts say Warsh will face problems if the data for August do not line up well with the decision the committee makes in September. Trump believes Warsh wants to cut rates but is prevented by others at the Fed whom he sees as 'hostile' and 'political'. However, Warsh has laid down a rate-hike marker of his own, and now the onus is on him to deliver.

The Fed will meet on September 15-16, and investors see a roughly two-to-one chance the central bank will approve a quarter-percentage-point hike in the overnight policy rate. A decision to hold rates steady again risks breaking a central bank taboo against not following up words with appropriate action.