Warsh's Rate Hike Dilemma Threatens Trump's Inflation Legacy
US Federal Reserve Chairman Kevin Warsh is facing a challenge in following through on his promise to raise interest rates, which could impact President Donald Trump's inflation record. After opening the door to higher interest rates last week, Warsh has to decide how to proceed with actions that are consistent with his own words and independent of Trump's wishes.
Warsh went further than expected in agreeing that higher rates may be needed to curb inflation stuck above 2%. However, he faces problems if the August data does not align well with the committee's decision. Trump has said he believes Warsh wants to cut rates but is prevented by others at the Fed.
Fed policymakers will meet on September 15-16, and investors see a roughly two-to-one chance of approving a quarter-percentage-point hike in the overnight policy rate. A rate hike later this month could be a powerful signal that Trump has failed to contain inflation, which would not help his chances in the upcoming midterm elections.
Warsh's credibility is at stake, and he needs to deliver on his promise or risk being branded as inconsistent. The Fed also meets in late October and December, but raising rates now could be a difficult step given Trump's expectations and animosity towards the Fed.