EXCLUSIVE — President Donald Trump expressed confidence in incoming Federal Reserve Chairman Kevin Warsh and said he would leave the interest rate decisions to him.
The Washington Examiner spoke to Trump during a Tuesday morning phone call and pointed out that investors are now pegging a higher chance of an interest rate hike rather than a cut by the end of the year, and asked him whether he thinks Warsh will deliver a cut.
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“I’m going to let him do what he wants to do,” Trump responded. “He’s a very talented guy, he’s going to be fine, he’s going to do a good job.”
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The remarks come despite the intense pressure campaign from the White House on outgoing Fed Chairman Jerome Powell to cut interest rates. It also comes after Warsh faced major questions about Fed independence during his confirmation hearing last month.
Warsh is staring down a difficult macroeconomic landscape that has only become more tricky with Powell’s decision to remain on the board.
The problem facing Warsh is that Trump has made it clear he wants lower interest rates, but both the higher inflation environment and Powell’s remaining on the board are making that far less likely.
The war with Iran has caused energy prices to spike, driving up headline inflation. And Powell is staying on the Fed board in part because of the Justice Department investigation into him, which has since been dropped, and the ongoing attempt to fire Fed governor Lisa Cook.
Markets are signaling that they do not believe that Warsh will be able to implement rate cuts. In fact, investors are betting that an interest rate increase is more likely than a cut by the end of the year.
As of Tuesday, the implied odds of a rate cut before the end of the year are just 0.5%, according to CME Group’s FedWatch tool, which calculates the probability of rate changes using futures contract prices for rates in the short-term market targeted by the Fed. The odds of a rate increase have risen to about 55%.
Inflation tracked by the most closely watched consumer price index showed that annual inflation shot up 0.5 percentage points to 3.8% for the year ending in April. The inflation reading for April was the highest since May 2023.
And on Wednesday, the producer price index showed wholesale inflation shot up to a blistering 6%, the biggest increase since 2022. It increased an astonishing 1.4% in April alone.
If higher inflation persists, the case for a rate cut at the Fed becomes increasingly unlikely, and some Fed participants might push for an increase.
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Warsh was confirmed by the Senate this month in a 54-45 vote, with only Sen. John Fetterman (D-PA) joining Republicans in voting for him to lead the central bank.
Warsh is set to be sworn in as Fed chairman during a ceremony on Friday. The first meeting he will participate in will be in mid-June.
