US Stock Market: Trump backs Warsh as Fed’s hawkish tilt raises rate hike odds
President Trump supports Federal Reserve Chair Kevin Warsh despite policy disagreements. Warsh maintains a cautious stance on monetary easing, differing from Trump's calls. The central bank kept interest rates unchanged at its latest policy meetin...
By Anupam Nagar, ETMarkets.com |
Reuters
The Fed chair’s stance contrasts with Trump’s preference for lower borrowing costs.
US President Donald Trump on Wednesday backed Federal Reserve Chair Kevin Warsh despite the central bank chief failing to deliver the interest rate cuts the president has been seeking, as per a Reuters report.
Trump praised Warsh as a capable central banker while suggesting that the Fed’s policy decisions were being influenced by other members of the board who favor maintaining higher interest rates. The comments came after the Fed’s latest policy meeting, where officials decided to keep interest rates unchanged.
Warsh, who took over as Fed chair in May from Jerome Powell, has so far maintained a cautious stance on monetary easing. The central bank has held rates steady in the 3.50%-3.75% range in both policy meetings under his leadership, even as Trump has repeatedly called for aggressive rate reductions to support economic growth.
However, Warsh’s recent comments indicate that he may be more open to tightening policy if inflation pressures continue to build. He highlighted that a resilient labor market, a strong economy and signs of rising underlying inflation could justify a more restrictive approach.
The Fed chair’s stance contrasts with Trump’s preference for lower borrowing costs. The president had frequently criticized former Fed Chair Jerome Powell for moving too slowly on rate cuts, but has so far avoided targeting Warsh despite the lack of policy easing.
The latest Fed meeting also highlighted growing divisions within the central bank. Three Federal Open Market Committee members dissented in favor of a rate increase, signaling concerns over inflation risks.
According to Reuters, financial markets are increasingly pricing in the possibility of a rate hike at the Fed’s next meeting in September, with rate futures indicating a more than 60% probability of a quarter-point increase.
The shift in expectations reflects concerns that inflation could remain elevated even as economic growth and employment conditions continue to show resilience, potentially limiting the scope for near-term monetary easing.
Trump praised Warsh as a capable central banker while suggesting that the Fed’s policy decisions were being influenced by other members of the board who favor maintaining higher interest rates. The comments came after the Fed’s latest policy meeting, where officials decided to keep interest rates unchanged.
Warsh, who took over as Fed chair in May from Jerome Powell, has so far maintained a cautious stance on monetary easing. The central bank has held rates steady in the 3.50%-3.75% range in both policy meetings under his leadership, even as Trump has repeatedly called for aggressive rate reductions to support economic growth.
However, Warsh’s recent comments indicate that he may be more open to tightening policy if inflation pressures continue to build. He highlighted that a resilient labor market, a strong economy and signs of rising underlying inflation could justify a more restrictive approach.
The Fed chair’s stance contrasts with Trump’s preference for lower borrowing costs. The president had frequently criticized former Fed Chair Jerome Powell for moving too slowly on rate cuts, but has so far avoided targeting Warsh despite the lack of policy easing.
The latest Fed meeting also highlighted growing divisions within the central bank. Three Federal Open Market Committee members dissented in favor of a rate increase, signaling concerns over inflation risks.
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According to Reuters, financial markets are increasingly pricing in the possibility of a rate hike at the Fed’s next meeting in September, with rate futures indicating a more than 60% probability of a quarter-point increase.
The shift in expectations reflects concerns that inflation could remain elevated even as economic growth and employment conditions continue to show resilience, potentially limiting the scope for near-term monetary easing.
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