Warsh's Rate Hike Dilemma Tests Credibility and Midterm Politics

US Federal Reserve Chairman Kevin Warsh is facing intense scrutiny over his decision to potentially raise interest rates, which could be seen as independent of President Donald Trump's wishes. After opening the door to higher interest rates last week, Warsh will have to decide how to follow through with actions that are consistent with his own words and not influenced by Trump.

Warsh's recent speech at the Kansas City Fed's annual Jackson Hole conference in Wyoming hinted at a rate hike later this month, which could be seen as a powerful signal from the US central bank's policy committee. This move would be less than two months before key congressional elections and would indicate that Trump has failed to contain inflation and will not get the Fed's help in lowering borrowing costs on the rising national debt.

Analysts generally credited Warsh's speech for clarifying that the Fed would use interest rates as the main weapon against rising prices. The decision is not a slam dunk, but markets are poised for a rate hike, even if there are compelling reasons to wait, said Mike Sanders, a portfolio manager and head of fixed income with Madison Investments.