Fed, Warsh’s debut between inflation and Trump

Kevin Warsh, the new president of Fed strongly desired by Donald Trump at the helm of the central institute, he is preparing to preside over tomorrow and Wednesday Fomc (Federal Open Market Committee). It will be his first meeting as number one of the committee for monetary policy and he will find himself in the classic, uncomfortable position, that is, between a rock and a hard place. THE’inflation is at a three-year high, but Warsh continues to face pressure from the White House to lower the interest rates.

The FOMC is made up of 12 members, and on Tuesday it will begin a two-day meeting whose outcome seems quite obvious for analysts: rates will remain unchanged. A compromise so as not to disappoint anyone. Several members of the Fed have in fact publicly expressed concern about the rise in prices, showing themselves in favor of a possible increase in rates in the future. On the contrary, the tycoon is a supporter of cuts to benefit American consumers and strengthen the economy.

Effects of war and political pressures

All this while the effects of the US president’s war on Iran Donald Trump they impact the largest economy in the world. Warsh was sworn in last month and has an ambitious, far-reaching reform agenda. He has expressed support for a rate cut in the past, in line with Trump’s demands, but will likely face resistance from a divided committee.

Internal divisions at the Fed

At its last meeting in April, the Fed kept rates unchanged between 3.50 and 3.75%, but the decision was met by four dissenting voices, the highest number since 1992. Analysts expect the FOMC to make a similar decision in June, although a debate is expected on whether to change the Fed’s guidelines and on the next move: a rate hike or cut.

The role of the majority

“He was appointed on Trump’s advice, probably because Trump was influencing him to cut rates,” Dan North, senior economist at Allianz Trade, told AFP. “I don’t think he will be able to do it now, especially in light of the data on inflation and employment growth, and what the FOMC members expressed with their disagreements at the last meeting.”

Fed mandate

The Fed has a dual mandate: to keep inflation at its long-term target of 2% while ensuring maximum inflation employment. Typically, the Fed achieves these goals through policy decisions interest rates: reducing financing costs to stimulate economic activity or increasing them to contain prices.

Economic scenario and forecasts

Before the US-Israel war against Iran sent energy prices skyrocketing last February, markets had already priced in at least one rate cut by the end of 2026. Before the war they had been the duties to increase prices especially in the USA. According to CME’s FedWatch tool, with inflation rising due to the war, however, forecasts point to a rate increase by December.

Clash with the White House

This is sure to infuriate Trump, who has launched an unprecedented attack on the Fed’s independence with a criminal investigation into Warsh’s predecessor, Jerome Powell, and an attempt to fire Governor Lisa Cook. Last week, in response to strong U.S. job growth data that suggested the Fed should focus on inflation, Trump said he still wanted lower rates but would leave “the decision” up to Warsh.

FOMC decisions

The FOMC decides by majority and, even if Warsh argues for a cut, he would have to convince at least six other members of the monetary policy committee to join his position. During his confirmation hearing, Warsh said he preferred “more chaotic meetings,” where committee members could have “a healthy family fight.” “It’s inserting itself into an already chaotic environment,” warned Allianz Trade’s North. “I don’t think he was referring to the family conflict.”

Forward guidance and communication

Greg Daco, chief economist at EY-Parthenon, told AFP that Warsh was unlikely to try to make radical changes at the meeting, his first chance to sit down with the full committee and “share his perspective on the economic landscape”. Warsh proposed reducing the amount of information the Fed communicates about its decisions: eliminating the forward guidance and projections.

Future prospects

“At this first meeting, I assume he won’t release his projections, but he won’t necessarily change how they’re released,” Daco said. While most analysts expect interest rates to remain unchanged at this meeting, opinions differ widely on what the Fed’s next move might be: whether it will need to address war-fueled inflation or whether it can be considered temporary.

Inflation and risks

“Delaying rate increases is riskier today than it was when the economy emerged from the pandemic,” warned Diane Swonk, chief economist at KPMG. “The persistence of inflation is the reality that Warsh has had to deal with; nothing can make it go away.” As for whether Warsh will give in to Trump’s pressure, “that’s something that will have to be tested,” EY-Parthenon’s Daco said. “To be honest, I don’t think we know for sure yet.”

Vision of the markets

Per Richard Flaxchief investment officer of Moneyfarm “the current context highlights how the closure of the Strait of Hormuz has so far had more limited effects on energy prices than initial fears, while the markets appear to continue to incorporate the prospect of a gradual normalization of energy flows through the area, favored by the possible easing of tensions in the Middle East. In light of these developments, it appears unlikely that the Federal Reserve will proceed with an increase in rates during the next meeting, a scenario which also finds broad consensus in market expectations”.

Interest rate outlook

“Particular attention – continues Flax – will be paid to the orientation of the new president Kevin Warsh. Although Donald Trump has repeatedly expressed a preference for lower interest rates, the current level of inflation makes it difficult to identify, in the short term, conditions compatible with a reduction in the cost of money. Investor expectations today indicate a rate increase of 25 basis points by the end of the year, in stark contrast to the forecasts of cuts that prevailed at the beginning of 2026”.