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White House economic adviser Kevin Hassett met with Federal Reserve Chairman Kevin Warsh this week, publicly endorsing the central bank's newly formed monetary policy working groups in a sign of unusual alignment between fiscal and monetary authorities.
White House National Economic Council Director Kevin Hassett met with Federal Reserve Chairman Kevin Warsh days before his first congressional testimony, praising the central bank's five newly formed monetary policy task forces in a rare public endorsement from the Trump administration.
"We had a very pleasant conversation, just like we've had for the past 30 years," Hassett said. The only policy-related comment he offered was that Warsh's working group selections were "very suitable" and that "if I were to form such a committee, I would choose these people too."
The task forces, unveiled last week, include former Walmart CEO Doug McMillon, Andreessen Horowitz cofounder Marc Andreessen and Microsoft Xbox CEO Asha Sharma. They will examine communications, the balance sheet, productivity and jobs, data and inflation frameworks — five areas Warsh has targeted as part of what he calls a "regime change" at the Fed. Several members have overlapped with Warsh professionally, including during his first stint at the Fed and at Stanford's Hoover Institution, where he was a visiting fellow for 15 years. Andreessen's connection to Warsh dates back 30 years to when the two attended Stanford together.
The meeting comes as Warsh prepares for his second day of congressional testimony Wednesday, where he is expected to face questions about both his overhaul of the central bank and the administration's influence over monetary policy. The Fed chair has repeatedly insisted the central bank operates independently, telling lawmakers Tuesday that "we're an independent central bank" when asked if he works for President Donald Trump.
Fed Independence Under Scrutiny
The Trump administration has subjected the central bank to an unrelenting onslaught of attacks since the president began his second term last year, particularly targeting Warsh's predecessor, Jerome Powell. The administration also tried to remove Fed Governor Lisa Cook from her role, though the Supreme Court last month ruled that Cook was not given enough due process.
Democratic Sen. Elizabeth Warren of Massachusetts has slammed Warsh for withholding his economic forecasts, writing in a letter obtained by CNN that "transparency about your own economic judgment is the minimum American families should expect." Warsh broke with tradition at his first monetary policy meeting by not submitting a "dot" — the individual rate projections from 19 Fed officials — and has suggested he may eventually scrap the quarterly projections entirely.
The fed funds rate currently sits at an elevated level, unchanged since the last increase in 2023. Markets are pricing a 17 percent chance of a rate hike in July, down from 42 percent before Tuesday's inflation report, according to CME FedWatch. Traders largely expect the Fed to hold rates steady in July and then raise rates in September.
Inflation Progress, But No Victory Lap
Tuesday's Consumer Price Index report showed annual inflation slowed to 3.5 percent in June from 4.2 percent in May, with prices falling 0.4 percent on a monthly basis — the first one-month decline in six years. Core inflation, which strips out food and energy, fell to 2.6 percent from 2.9 percent.
But Warsh pushed back against any suggestion of declaring victory. "It's one data point," he testified. "There might be some that look at this morning's data and say, 'Oh, mission accomplished. Everything is swell.' That is not my view."
The relief may prove short-lived. Falling energy prices accounted for more than 100 percent of the monthly decline in CPI, with gasoline alone accounting for just under 100 percent. Oil prices have since rebounded as the US-Israeli conflict with Iran has re-escalated, with Brent crude rising more than 1 percent to $84.35 per barrel and WTI gaining almost 1 percent to $78.70 per barrel.
Fed Governor Christopher Waller, who was in the running for the top job at the Fed earlier this year, has adopted a decidedly tough stance, saying Monday that "sternly staring at inflation until it melts before our withering gaze is not an option." He joins other officials including Cleveland Fed President Beth Hammack and Minneapolis Fed President Neel Kashkari who have expressed similar concerns about inflation.
The last time the Fed faced this level of tension between cooling inflation data and resurgent energy prices was in mid-2023, when oil shocks from the initial Iran conflict pushed the Fed to hold rates steady for three consecutive meetings before ultimately raising them. The S&P 500 fell 6 percent over that period while the two-year Treasury yield rose 35 basis points.
For now, the path of rates depends largely on events in the Middle East. "A positive resolution with Iran before the end of the summer is becoming increasingly important," said Jeffrey Roach, chief economist at LPL Financial. "After today's benign core inflation release, it appears less likely that the FOMC will raise rates over the next few meetings. However, we may still be at an inflection point."
This article is for informational purposes only and does not constitute investment advice.
