Trump backs Warsh, demands lower rates with 35% odds of a hike

Trump publicly backed Fed Chairman Kevin Warsh on Monday while demanding lower rates as the central bank weighs a potential hike.

President Trump threw his support behind Federal Reserve Chairman Kevin Warsh on Monday while calling for lower interest rates, even as markets price a 35% chance of a rate increase at this week's policy meeting.

"Kevin is fantastic, but he's got a board, and the board members are very political," Trump told reporters aboard Air Force One, adding that he knew what Warsh wanted to do. The president said the U.S. "should have the lowest interest rate in the world" and accused unnamed Fed officials of having "bad intentions."

The comments come as the Fed's July 28-29 meeting approaches with an unusually wide range of outcomes. Dallas Fed President Lorie Logan has called for modestly higher rates, arguing inflation is not heading sustainably back to the 2% target. Cleveland Fed President Beth Hammack said "there is no conflict" in the Fed's dual mandate and inflation is a bigger concern than employment. Both vote on this week's decision and could dissent if officials hold steady. Market-implied odds of a hike climbed to nearly 40% earlier this month before settling around 35%, according to federal funds futures, after a cooler-than-expected June CPI report briefly pushed them below 10%.

The standoff puts Warsh in a delicate position. Raising rates this week could help the chairman build anti-inflation credibility but risks antagonizing a president who appointed him and has publicly demanded cheaper borrowing costs. Holding steady, by contrast, could invite further political pressure while inflation risks from Middle East oil disruptions, new tariffs and AI-driven demand remain elevated. The Fed's post-decision statement and Warsh's press conference will be scrutinized for any shift in forward guidance.

The current fed funds rate stands at 4.75% to 5% after the half-point cut in September 2024 — the last adjustment before four consecutive holds. The last time a sitting president publicly pressured a Fed chairman on rate policy was in 2018-2019, when Trump criticized Jerome Powell for raising rates, a campaign that coincided with the Fed's pivot to cuts in 2019.

Warsh, whom Trump appointed to succeed Powell, has reaffirmed the central bank's commitment to reducing inflation without offering specifics on the timing or magnitude of any move. Fed Vice Chair Philip Jefferson said after the June CPI report that "if actual inflation does not start to cool down soon, I believe that it could be appropriate to reconsider our current policy stance."

The political dynamics add another layer of complexity. Trump criticized Powell after the Fed's half-point cut in September 2024, calling it a "political move" designed to help his election rival. Joseph Lavorgna, chief economist of the Americas at SMBC Nikko Securities America and a former Trump Treasury official, said lifting rates this month could help Warsh build credibility and may be viewed as less political than a move closer to the November midterm elections. "Going in September or, God forbid, October — a first hike, right before the mid-terms — how's that going to look? He might as well go now," Lavorgna said.

The bond market is already reflecting the uncertainty. Two-year Treasury yields have fluctuated as investors reassess the rate path, while the dollar has weakened modestly on expectations that political pressure could ultimately force the Fed's hand toward easing. A rate hike this week would likely strengthen the dollar and push short-term yields higher, tightening financial conditions at a time when Trump is demanding the opposite.

This article is for informational purposes only and does not constitute investment advice.