US President Donald Trump’s administration is signalling that the Federal Reserve will have room to make its own interest-rate decision, even as the White House continues to favour lower borrowing costs.
Kevin Hassett, director of the White House National Economic Council, said on television Sunday that inflation is improving and the Fed does not need to raise interest rates. He also said Trump “100% respects the independence of Kevin Warsh” and would “100% support” whatever the central bank decides, according to a Wall Street Journal report.
The comments come ahead of the Fed’s latest policy meeting, where investors are expecting Warsh to potentially raise interest rates. A rate hike would put the Fed chair in a delicate position because Trump has previously pushed the central bank for lower rates.
Why Kevin Warsh’s next rate decision matters
According to the Wall Street Journal, Trump spent much of last year demanding rate cuts from the Federal Reserve. Warsh, who took over as Fed chair in May, now faces expectations that the central bank could reverse course and begin raising rates.
The economic backdrop has also changed since Warsh took charge. The WSJ reported that the prolonged war with Iran has pushed energy prices higher, while new tariffs and rising demand linked to the AI build-out have added to inflationary pressures and supply constraints.
That has created a difficult policy choice for the Fed. A rate increase would mean tighter monetary policy at a time when the White House has been advocating lower rates.
Trump says he respects Warsh’s independence
Hassett’s comments are significant because they represent an attempt to separate Trump’s preference for lower rates from the Fed’s policy decisions.
“He said Trump ‘100% respects the independence of Kevin Warsh’ and would ‘100% support’ whatever the central bank decides,” the Wall Street Journal reported.
However, Hassett also acknowledged that Trump would not be “super happy” if the Fed raised rates, according to the report. He also argued that the central bank could face questions about its reputation for staying out of politics if it changes rates close to an election.
The WSJ noted that the political pressure can cut both ways. If Warsh keeps rates unchanged despite market expectations of an increase, that could raise questions about whether the Fed is responding to the administration’s preference for lower rates.
A rate hike would test the Trump-Warsh relationship
Warsh’s appointment initially appeared to ease Trump’s confrontation with the Federal Reserve. The WSJ reported that Trump has repeatedly said he trusts Warsh to “do the right thing”, a stance that has spared the new Fed chair the kind of criticism directed at his predecessor, Jerome Powell.
A rate increase before the US midterm elections would therefore provide a significant test of that relationship.
For investors, the immediate issue is not only the rate decision itself but also what Warsh signals about future monetary policy. A decision to raise rates could indicate that the Fed is prioritising inflation concerns despite the administration’s preference for lower borrowing costs.
The Wall Street Journal’s report frames the upcoming decision as a test of whether the truce between Trump and the Federal Reserve can survive a policy choice that the president may not favour.
