Warsh's credibility is on the line this week as Trump policies put pressure on Fed to hike — SkimNews
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- Federal Reserve stands on the verge of its first rate hike since 2023, with futures markets pricing in at least three additional hikes through March of next year — a stark reversal from March, when officials were still forecasting a rate cut this year.
- Trump's tariffs and the Iran war have forced the Fed's hand: oil remains near $100 a barrel, diesel has surged to $6 a gallon, and the temporary shutdown of the Saudi East-West pipeline signals oil prices won't fall quickly.
- Trump levied new tariffs on Canada last week in response to retaliatory levies and has threatened additional tariffs on the US's second-largest trading partner, adding to cumulative price pressures the Fed can no longer treat as 'one-offs.'
- Kevin Warsh warned in his Jackson Hole speech that if the Fed wasn't confident underlying inflation was declining, it would have 'work to do'; his hawkish stance now puts his credibility as Trump's handpicked chair on the line.
- Neel Kashkari broke ranks, writing that he 'increasingly believes monetary policy does have an important role to play in addressing a series of successive supply shocks' — citing the Fed's 1970s playbook as the appropriate response.
- By publicly calling for rate cuts and handpicking Warsh, Trump undermined his own Fed chair's credibility from day one — Warsh's first congressional testimony cited his independence as his failure to deliver the cuts Trump wanted.
- Former Vice Chair Roger Ferguson told CNBC: 'Everything is pointing in the direction of September as a time to move if Warsh and his colleagues are going to maintain credibility.'
Why it matters: Trump's handpicked Fed chair now faces a textbook credibility test: hike and defy the president who appointed him, or hold rates and risk entrenching inflation. With at least three hikes priced in through March 2026, Warsh's Wednesday decision signals whether the Fed treats successive supply shocks — from $100 oil to cascading tariffs — as transitory or persistent.
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