In the coming days, a starkly contrasting scenario may unfold in U.S. financial circles regarding Federal Reserve policy. New Fed Chair Kevin Warsh might follow a path similar to his predecessor Jerome Powell's on interest rates, yet receive a markedly different reception from former President Donald Trump. Trump's unexpected comments on Wednesday regarding the latest inflation figures appear to grant Warsh considerable leeway in monetary policy.
Just hours after the Bureau of Labor Statistics reported annual inflation had surged to 4.2%, Trump remarked from the Oval Office, "I love inflation." His dismissive attitude towards the highest inflation reading in three years suggests the market's widespread expectation for rapid Fed rate cuts may have eased temporarily, potentially providing Warsh with a valuable buffer period.
For years, Trump consistently criticized and constrained Powell, whom he viewed as stubbornly refusing to cut rates faster and deeper as the White House desired. Now, with Warsh officially installed as Fed Chair and facing his first policy meeting next week, Trump has signaled repeatedly that he would not interfere even if Warsh slows the pace of easing.
The prevailing market consensus strongly expects the Fed to hold the short-term benchmark rate steady at 3.5%-3.75%, a range unchanged since last December. Since the Iran conflict erupted in March, disrupting shipping through the Strait of Hormuz—a critical chokepoint for global oil flows—energy prices have remained elevated.
Several Fed officials, including Dallas Fed President Lorie Logan and Cleveland Fed President Beth Hammack, have recently stated that now is not the time for rate cuts, with some even suggesting the possibility of hikes this year.
Wednesday's Consumer Price Index (CPI) report showed U.S. inflation jumped a significant 4.2% year-over-year in May. However, Fed officials analyzing the data are inclined to look past temporary disruptions, downplaying the warning signal of this surge: the core CPI, which excludes volatile food and energy prices, rose just 2.9% annually.
For much of 2025, Warsh has argued that breakthroughs in artificial intelligence technology provide sufficient justification for Fed rate cuts. Yet, during his April Senate confirmation hearing, he acknowledged, "Inflationary pressures remain a core concern for both ordinary households and corporate boardrooms," and that rate cuts are unlikely to be considered until inflation risks have fully subsided.
While conventional Fed policy logic calls for raising rates when inflation accelerates, Warsh views price increases stemming from geopolitical conflict as a special case. He stated at the hearing, "What I'm really focused on is the underlying, endogenous core inflation in the economy, not short-term price moves from one-off events like geopolitical conflicts or beef supply fluctuations. I'm assessing broad-based price changes across the economy."
Within the Fed's professional lexicon, this approach is termed "looking through" supply shocks—meaning the central bank would allow markets to absorb short-term price fluctuations on their own, even if a one-off disruption like the Iran energy crisis persists longer than expected.
On Wednesday, Trump happened to echo this very logic. When asked by reporters, he called the latest inflation data "great." Discussing the inflation trajectory, Trump said, "When the war ends, inflation will come down fast. It's going to come down like a rock." This comment aligns with his recent remarks: despite his long history of pressuring Powell for aggressive cuts, he now appears willing to let Warsh set policy autonomously.
In an interview aired last Sunday, Trump said he actually prefers higher interest rates, but added, "I'm letting Warsh do what he thinks is right. I don't want to put too much pressure on him." During Warsh's swearing-in ceremony at the White House on May 22nd, Trump made a similar statement: "I want Kevin to have complete independence. Just do your thing, do a great job."
This represents a complete reversal from his past treatment of Powell. Crucially, Trump previously employed various tactics to pressure Powell into policy changes. He publicly called for rates to be slashed to 1% and accused Powell of refusing to cut due to a personal grudge. Last year, discussing Powell, he claimed, "He's doing it on purpose to get me," even insulting the then-Fed Chair as "stupid." Powell later stated he never took Trump's verbal attacks personally.
But Trump's pressure tactics extended beyond insults: he attempted to remove Fed Governor Lisa Cook from her post, citing allegations related to mortgage fraud. Cook subsequently sued to defend her position, and the Supreme Court is expected to rule on the case soon. Trump also alleged "criminal activity" behind massive cost overruns in a Fed headquarters renovation project.
District of Columbia U.S. Attorney Jeannie Rhee initiated a criminal investigation into these expenses and related congressional testimony from Powell. A federal judge has already quashed a subpoena issued by prosecutors in that investigation and is expected to rule soon on Rhee's subsequent motion to dismiss the entire case.
Having previously exhausted methods to influence Powell, Trump now finds himself with fewer levers to constrain Warsh. However, upon taking office, Warsh publicly stated he is willing to listen to the President's views on interest rates, though the ultimate decision-making authority rests with the Fed.
The White House did not respond to an email inquiry on Wednesday regarding whether Trump and Warsh had discussed inflation. Warsh has maintained contact with the administration. He communicated with Treasury Secretary Scott Bessent during the confirmation process, and shortly after Warsh's appointment, the two resumed the traditional practice of regular meetings between the Fed Chair and the Treasury Secretary.
These signs indicate the new Fed Chair is enjoying a rare period of political goodwill regarding policy. Next week's rate meeting will reveal how Warsh intends to utilize this宽松的外部环境 (lenient external environment). The Fed also announced on Wednesday that Warsh will hold his first post-meeting press conference as scheduled on June 17th.
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