Warsh’s credibility is on the line this week as Trump policies put pressure on Fed to hike
Warsh's credibility is on the line this week as Trump policies put pressure on Fed to hike. Skip NavigationMarketsBusinessInvestingTechPolitics & PolicyVideoWatchlistInvesting ClubPROLivestreamMenuKey PointsPresident Donald Trump's policies are a big reason the Federal Reserve, led by his appointee Kevin Warsh, has to consider a rate increase this week.
What happened
Anna Moneymaker | Getty ImagesBefore President Donald Trump reels off angry Truth Social posts if the Federal Reserve hikes rates this week, he should look in the mirror: His policies are a big reason the central bank has to consider a rate increase. So it's ironic that a direct line can be drawn from Trump's policies to what looks like an inevitable rate increase Wednesday by the Fed, likely to be spearheaded by his handpicked Fed chairman, Kevin Warsh.
"Fed's credibility at stakeThe president has forced Warsh's hand to hike in another, more subtle way. Warsh would be unlikely to hike solely because of the credibility issue. "Everything is pointing in the direction of September as a time to move if Warsh and his colleagues are going to maintain credibility,'' former Vice Chair Roger Ferguson said on CNBC. watch nowVIDEO2:2502:25September is the time to hike if the Fed is going to maintain its credibility: Roger FergusonSquawk BoxNow, with inflation above target and no visibility on lower oil prices or stability of tariffs, the Fed chairman needs to pass the test that has faced his predecessors: proving to markets he's willing to risk a downturn and defy the administration to combat inflation, no matter what party is in power.
President Donald Trump speaks with the new chairman of the Federal Reserve, Kevin Warsh, after a swearing-in ceremony in the East Room of the White House, in Washington, May 22, 2026. It was a sign of the Fed's continued willingness to "look through" policies of the Trump administration that resulted in higher prices and to treat them as "one-offs.
The wider picture
"Six months later, the Fed stands on the verge of what markets expect to be the first rate hike since 2023. At least three hikes are priced in through March of next year. Tariffs and IranTwo aspects of the president's policies look to be forcing the hand of the Fed. The situation has clearly worsened with the temporary shutdown of the Saudi East-West pipeline. Just last week, the president levied new tariffs on Canada in response to its retaliatory tariffs in response to U.
While small by themselves and unlikely to spark broader inflation, they will add to existing price pressures from the levies. The message to the Fed once again is there is no guarantee of anything, especially tariffs, being one-off in the Trump presidency. In his Jackson Hole, Wyoming, speech, Warsh said if the Fed wasn't confident that underlying inflation was declining, it would have "work to do.
What has been reported
" Warsh could gain that confidence with an apparent path to an end to the Iran war or some assurance that the president is satisfied with the current tariff regime. The recent dissent by Minneapolis Fed President Neel Kashkari, though it didn't mention the president or his policies, shows the growing concern with cumulative inflationary policies. By calling so publicly for rate cuts and picking a Fed chairman whom he suggested was on board, the president undermined his own chair's credibility from day one.
The proof of this came from Warsh's first congressional testimony where he said a sign of his independence came in his failure so far to cut rates as the president had desired. Numerous Fed observers have noted that the chairman's reputation faces a test this week after his hawkish speech in Jackson Hole. On that basis, given recent developments in Iran and the Trump administration's actions regarding tariffs, it would seem difficult for the Fed to assess them as anything but leading to higher inflation in the months ahead.
With inflation above target and no visibility on lower oil prices or stability of tariffs, the Fed chairman needs to pass the test that has faced his predecessors Reescalating tariff battles and a persistent Iran conflict have both resulted in sharp changes to the inflation outlook and may no longer be able to be dismissed as one-off supply shocks.
What happens next
The Fed chairman needs to pass the test that has faced his predecessors: proving to markets he's willing to risk a downturn and defy the administration to combat inflation. In March, one month after the beginning of the Iran war, with oil near $100 a barrel, the average Fed official was still forecasting a rate cut this year and another one next year. And futures markets predict this is will not be a one-off increase. It's a stark turnaround, but not one based on bad forecasting.
No president has publicly harangued and harassed the Fed more to lower interest rates. Tariffs and the Iran war have both resulted in sharp changes to the inflation outlook. But, second, and potentially more consequential, may be the inability to judge the trajectory of policy.