Fed's Warsh Faces Pressure to Act on Stubborn Inflation
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- Federal Reserve is expected to keep its key interest rate unchanged at this week's Tuesday-Wednesday meeting, but Chair Kevin Warsh faces growing pressure to hike soon — a move that could provoke President Trump, who appointed him.
- Kevin Warsh, who took over as Fed chair in May, told Congress the central bank has "no tolerance" for higher inflation and pledged in his first rate statement to "deliver price stability," though he has refused to signal specific next steps the way predecessor Jerome Powell did.
- Core inflation has been stuck at roughly 3% or higher since 2023, with the Fed's preferred measure above its 2% target for more than five years, according to the article.
- The Iran war's resumption pushed gas prices back above $4 a gallon nationwide from just below $3.80 around the July 4 holiday, and the 10-year Treasury yield briefly topped 4.7% last Thursday — the highest in about 18 months.
- Dallas Fed President Lorie Logan, a voting member, said "modestly higher interest rates would better balance the outlook," and Fed Governor Christopher Waller warned that "sternly staring at inflation until it melts before our withering gaze is not an option."
- Former St. Louis Fed President James Bullard said Warsh's rhetoric has been "very effective" in establishing credibility, "but markets are going to demand action" — while Joseph Lavorgna, a former Treasury economist, argued "there has never been a time when inflation gradually moderated without impetus from the Fed."
- Counterpoint from Stephen Douglass of NISA Investment Advisors: the Fed is "hoping and intending to talk the talk without having to walk the walk," and he does not expect a rate hike this year — though June's report did show core inflation cooling noticeably and gas prices falling nearly 10% before the conflict reignited.
Why it matters: Warsh was appointed by Trump, who has historically opposed rate hikes, putting Fed independence in direct tension with political pressure. The 10-year Treasury yield has already climbed to 4.7% — an 18-month high — on tough talk alone. If June's cooler inflation reading doesn't hold against war-driven gas prices, the Fed could be forced into action regardless of who occupies the Oval Office.
