Trump Eases Pressure on Warsh as Inflation Tops 4%
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- Inflation rose 4.1% year-over-year through May per Bureau of Economic Analysis data released Thursday, well above the Fed's 2% PCE target; core inflation rose 3.4% excluding volatile energy and food prices.
- The Trump administration has stopped publicly demanding near-term rate cuts, with a White House official saying it is "not a shift in policy" but rather that "personnel is big for this president," who has "confidence and faith" in Warsh that he did not extend to predecessor Jerome Powell.
- Fed Chairman Kevin Warsh kept rates steady last week and ended a longstanding plan biased toward cuts; nearly half of Fed policymakers project rate increases this year, and CME FedWatch showed markets pricing a 79% chance of a December rate increase as of Friday.
- Peter Navarro, who previously called for cuts, made a "hold-steady case" in a Thursday opinion essay and told CNBC it would be "foolish" to consider rate increases now, while Treasury Secretary Scott Bessent said Warsh will "be independent and do what he wants" — remarks Renaissance Macro's Neil Dutta read as a "green-light to hike."
- Kevin Hassett, director of the National Economic Council, said he supports Warsh pausing at his first meeting to "get your feet on the ground and hold steady."
- Trump contradicted his own economic team Wednesday, declaring at an Oval Office event: "We need low interest rates. Low interest rates will solve everything."
- Energy prices helped drive the inflation print but have eased since the Strait of Hormuz reopened — AAA said the average U.S. gallon of gas hit $3.90 on Friday, down 58 cents from a month ago — though Iranian forces attacked a cargo ship in the strait Thursday.
Why it matters: Warsh now has administration backing to keep rates steady or even hike — nearly half of Fed policymakers project increases this year and CME FedWatch prices a 79% chance of a December rate increase — but that patience is grounded in Trump's personal confidence in Warsh, not policy consensus, since Trump returned to demanding cuts just this Wednesday and Bessent left room to reassess once the Iran conflict fades.
