The Trump administration has launched a broad public campaign urging Federal Reserve Chair Kevin Warsh to hold or cut interest rates, ten days before a September meeting where markets price a 60% chance of a hike. The pressure lands as inflation gauges diverge and comes just two months before the midterm elections.
Administration escalates pressure on Warsh
President Donald Trump, Vice President JD Vance, Treasury Secretary Scott Bessent and senior economic counselor Peter Navarro have all urged the Fed in the past week not to raise rates and, in some cases, to cut them, an unusually broad public pressure campaign even by the standards of Trump's long-running criticism of the central bank. Trump escalated Friday by threatening to halt trade with countries running trade surpluses with the U.S. unless the Fed cuts rates, the first time he has directly tied tariffs to a rate decision.
Navarro, in an interview with Steve Bannon, criticized FOMC members and said a hike would be careless, warning it would hit the sectors America needs most to prosper. Vance said, "We believe that the Fed should be lowering interest rates", while Bessent noted that the Fed typically doesn't raise rates during a supply shock until second- or third-order inflationary effects appear.
Markets price a coin-flip hike
Traders now put about a 60% probability on a quarter-point rate hike at the Sept. 15-16 meeting. That figure was bolstered by a strong August jobs report showing 162,000 jobs added. Average hourly earnings rose 0.3% in August and 3.1% from a year earlier, while unemployment held at 4.1%.
Warsh has said the president has had no impact on his decisions and, in July congressional testimony, cited the Fed holding rates steady as evidence of its independence — though he has also said politicians have a right to comment on Fed policy. Three officials, Beth Hammack, Neel Kashkari and Lorie Logan, dissented in favor of a hike at the July meeting, where rates were left unchanged.
Inflation gauges diverge
Administration officials point to core CPI running at a three-month annualized rate of 1.6%. That compares with the Fed's preferred core PCE measure, which sits at just over 3% on the same basis. Several Fed officials remain concerned that inflation has run above the 2% target for five years, and Warsh said at Jackson Hole that 54% of the 199 components in the PCE measure had risen more than 3% over the prior 12 months.
The standoff echoes May 2019, when Vice President Mike Pence, Treasury Secretary Steve Mnuchin and economic advisor Larry Kudlow pressed the Fed to consider cutting rates; the Fed cut rates two months later. Markets will focus on Friday's CPI report as the last major gauge before the Fed's decision.
Source: CNBC
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