Trump-Warsh Closeness Risks Fed Credibility — SkimNews
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- Trump has "spoken repeatedly" with Warsh since his confirmation as Fed chairman, per The Wall Street Journal — a stark contrast from predecessor Jerome Powell, who had only one direct meeting with Trump during Trump's second term through Warsh's May 22 swearing-in
- White House spokesman Kush Desai said Trump is giving Warsh "the space he needs" and respects his independence, though Warsh has not changed the interest rates he inherited from Powell
- Treasury Secretary Scott Bessent sharply criticized a WSJ reporter's Fed coverage on X just before the Trump-Warsh relationship story ran, signaling the administration sees Warsh as an ally worth defending
- Market commentators panned Warsh's second press conference, saying mixed hawkish signals on inflation cost him credibility, and investors sold off long-term government debt as a hedge against perceived inaction
- Five-year inflation swaps have fallen modestly since Warsh's press conference but remain above the Fed's 2% target, meaning Warsh could keep rates on hold if inflation continues to ease
- Former Treasury Secretary Timothy Geithner warned that if inflation spikes, Warsh would have to "do more than otherwise would be necessary to earn that credibility" — slow the economy to prove a political point
- Rep. Brad Sherman (D-Calif.) told Warsh at a hearing: "Your agency has saved Donald Trump from himself," underscoring that Fed independence during the Powell era shielded Trump from his own inflationary instincts
Why it matters: If inflation spikes, Warsh may need to raise rates more aggressively than economics alone would require — just to demonstrate he isn't politically captured. Per Geithner, that means deliberately slowing the economy to prove a point, which would undercut the very economic stability that helped Trump win in 2024 after the Biden-era inflation backlash.
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