Trump turns up the heat on Warsh as Fed rate hike looms

Ten days before the Federal Reserve’s Sept. 15-16 meeting, the Trump administration is conducting an unusually broad campaign against a possible rate increase. Markets assign roughly a 60% probability to a quarter-point hike after employers added 162,000 jobs in August. President Donald Trump threatened to halt trade with countries running surpluses with the United States unless the Fed cuts rates. Senior economic counselor Peter Navarro, speaking to former Trump adviser Steve Bannon, called a hike “careless,” said it would hurt sectors America needs, labeled Federal Open Market Committee members “clowns” and said new Fed Chairman Kevin Warsh was trying to do the right thing. Vice President JD Vance said the Fed should lower rates. Treasury Secretary Scott Bessent told CNBC that policymakers typically avoid raising rates during a supply shock until second- or third-order inflationary effects emerge. The decision comes two months before November’s midterm elections, as polls show dissatisfaction with higher prices and interest rates. Trump has avoided directly attacking Warsh as he did former Chair Jay Powell, although The Wall Street Journal reported repeated conversations between them. Trump denied that account, saying he had spoken with Warsh only once while in office. Warsh has said presidential pressure has not affected his decisions. In July congressional testimony, he cited the Fed’s decision to hold rates steady rather than cut as evidence of its independence, while acknowledging that politicians may comment on policy. The administration argues that growth, tax cuts and capital investment can expand supply without creating inflation. Trump said on Truth Social that strong growth should leave the United States with the world’s lowest rates. Officials highlight a 1.6% three-month annualized core Consumer Price Index rate, compared with just over 3% for core Personal Consumption Expenditures, the Fed’s preferred measure. Fed officials remain concerned that inflation has exceeded the 2% target for five years. Beth Hammack, Neel Kashkari and Lorie Logan dissented in July in favor of a quarter-point hike. In Jackson Hole, Warsh noted that 54% of 199 PCE components rose more than 3% over 12 months. August average hourly earnings increased 0.3% month over month and 3.1% year over year; unemployment was 4.1%. AI investment may eventually lift productivity but currently raises prices for infrastructure equipment. Friday’s CPI report could determine whether the Fed hikes or holds. No FOMC member has recently discussed cuts publicly.