From CNBC · Matt Peterson · · 2m
Warsh's rate hike tests Trump's Fed independence
The new Fed chair defies Trump's pressure and raises rates, setting up a potential clash over central bank autonomy.
In brief
The new Fed chair defies Trump's pressure and raises rates, setting up a potential clash over central bank autonomy. Kevin Warsh's decision to raise rates despite Trump's public opposition signals the Fed may maintain independence, but Trump has multiple tools to pressure the central bank if he chooses to use them…
Warsh raises rates despite Trump's pressure
Fed Chair Kevin Warsh voted unanimously to raise interest rates by a quarter point on Wednesday, ignoring repeated calls from Trump and his administration to cut or hold steady.
“I've got nothing for you on a discussion with the president.”
Warsh cites inflation above target
The Fed chair said inflation remained stuck above the 2% target, justifying the rate increase to 3.75%-4% despite Trump's stated preference for 1% rates.
Trump questions Warsh's judgment
Trump told reporters he still had confidence in Warsh but said he had a hostile board and didn't understand what Warsh meant by a responsible decision.
“He's a good man, Kevin Warsh. But no matter how good a job, he's got a hostile board.”
Trump fired Powell for rate cuts
Trump selected Warsh after souring on Jerome Powell, whom he blamed for cutting rates by half a point in September 2024, believing it favored the Democratic incumbent.
Fed's election timing is historically normal
The Trump administration claims the Fed shouldn't intervene before elections, but since 1994 the Fed has changed rates with similar timing before five election years: 1998, 2004, 2008, 2018, and 2022.
Trump has tools to pressure the Fed
Trump attempted to fire Fed Governor Lisa Cook in 2025, the Supreme Court blocked it, but he restarted the process last month. He could also use investigations into Powell and Michael Barr as leverage.
Cook firing process restarted
The administration sent Cook a letter in August saying Trump was considering firing her and demanded a response by August 26. She responded, and the decision now rests with the administration.
Barr could face firing over SVB collapse
A consultant is investigating the 2023 Silicon Valley Bank failure. Some analysts believe the probe could give Trump a pretext to fire Michael Barr, who oversaw bank supervision at the time.
Warsh's independence will test Trump
Democrats worried Warsh wouldn't be independent of the president who appointed him. Wednesday's rate decision suggests they may have judged too early, but Trump's next move will reveal whether he accepts Fed autonomy.
The short version
Kevin Warsh's decision to raise rates despite Trump's public opposition signals the Fed may maintain independence, but Trump has multiple tools to pressure the central bank if he chooses to use them.
