Trump will let the new Fed chief 'do what he wants'. What does this mean for rates?

U.S. President Donald Trump, who demanded from the U.S. central bank to soften monetary policy, has made it clear that he is ready to change the rhetoric with regard to the Federal Reserve System (Fed), drew the attention of MarketWatch. To the future head of the Fed Kevin Warsh Trump is ready to give freedom of action in the near future.

In an interview with the Washington Examiner on May 19, in response to a question about whether Warsh would cut interest rates at a time when markets believe an increase is more likely, Trump said, "I'm going to let him [Warsh] do what he wants to do." "He [Warsh] is a very talented guy, he's going to be fine, he's going to do a great job," the US president added.

Prior to that, for more than a year Trump had been putting pressure on the U.S. central bank to ease monetary policy. In particular, he criticized outgoing Fed chief Jerome Powell because the U.S. central bank was not cutting rates as quickly as he would like, MarketWatch notes.

Following the results of the meeting on April 28-29, the US Federal Reserve did not change the interest rate for the third time in a row, keeping it at the level of 3.5-3.75%, which fully coincided with market expectations. However, the era of Jerome Powell has officially come to an end - on May 15, his second term in office expired. This Friday, Ma. 22, his successor Kevin Warsh will be officially sworn in at the White House as the new head of the regulator.

According to economists, Warsh can expect a difficult start in his new post. Against the background of increasing inflation rates in the U.S., the financial markets are increasing pressure in favor of raising interest rates. Market participants estimate the probability of their increase by December in 60%, notes MarketWatch. Against this background, Trump's change in rhetoric regarding the Fed looks like a recognition that Warsh will be only one of 12 voting members of the Federal Open Market Committee (FOMC), the publication notes. Decisions on the rate are made at the Fed by a collegial vote.

"It sounds like Trump realizes how the FOMC works and that things may not go his way, at least in the beginning. It sounds like the White House is prepping retreat paths for himself in advance, since we won't see a rate cut in June. This gives Worsh some breathing room to settle into his first few months as Fed chair," said Monetary Policy Analytics economist Derek Tang.

However, the White House's patience with Warsh may run out as the midterm elections for the US Congress in November approach, Tang said. He believes voter attitudes toward the economy must improve by September for Republicans to repeat their 2024 success in the next election.

This article was AI-translated and verified by a human editor