Warsh hikes rates, stocks crater

Fed chair Kevin Warsh voted to raise rates Wednesday, sending the S&P 500 to its lowest close since July. The move risked disappointing both bond markets and stock investors.

Market bounces back by Thursday

By Thursday morning, traders had moved past the shock. The Nasdaq rallied over 400 points, the S&P gained more than 1%, and the Dow added 224 points after falling 630 the day before.

Trump demands lower rates immediately

Trump told reporters he'd spoken to Warsh before the vote and called the Fed "very hostile" and "very political." He then posted on Truth Social demanding rates of "1% or less."

“"LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!"”

History repeating with Powell

Trump attacked Jerome Powell for not cutting rates fast enough and picked Warsh partly because he'd criticized Powell's Fed. Now Warsh is raising rates, creating the exact conflict Trump tried to avoid.

Warsh defends the hike on inflation

Warsh said plainly that "inflation is too high" and defended the rate increase. When asked about Trump's pressure, he said only that "independence is a two-way street."

“"independence is a two-way street"”

Bond market and data support the move

The 10-year Treasury yield fell to 4.949%, signaling investors believe the Fed is serious about inflation. Jobless claims came in at 196,000, below expectations, supporting Warsh's case that the labor market can handle a hike.

Global central banks follow suit

The European Central Bank hiked last week, the Bank of Japan is expected to hike Friday, and the Bank of England warned a hike is increasingly likely. Warsh is not alone in tightening policy.