Trump pressures Fed Chair Warsh to cut rates as CPI hits 3.8%

Trump publicly demanded Fed Chair Kevin Warsh cut interest rates Sunday, hours before the central bank's June 16-17 meeting, as US inflation accelerated to 3.8% — its highest in three years.

"There is no reason to raise rates whatsoever," Trump said on NBC's "Meet the Press." "They raise rates, they're trying to kill our success. We should actually be cutting rates."

The fed funds rate sits at 3.5% to 3.75% after the central bank held steady since a 25-basis-point cut in September 2025. Cleveland Fed President Beth Hammack said Friday that "if recent trends continue, may soon need to take action," while Treasury Secretary Scott Bessent urged patience, saying the Fed should wait for the impact of Middle East conflict on inflation to become "clearer." Markets now price a 45% probability of a rate hike by September, according to OIS pricing.

The standoff between the White House and the Fed creates a volatile setup for risk assets. The S&P 500 has fallen 6% since the March CPI print, while the 10-year Treasury yield climbed 35 basis points to 4.65%. The US Dollar Index rose 2.3% over the same period as rate differentials widened. Bitcoin dropped below $60,000 for the first time since October 2024, extending a decline from its $126,000 peak as institutional ETF outflows topped $3 billion in January alone.

Inflation Pressures Mount as Middle East Conflict Bites

The inflation surge traces directly to the Middle East conflict. Iran's blockade of the Strait of Hormuz at the war's onset pushed oil prices sharply higher, and that cost pressure has cascaded through the US economy. May CPI data, due Wednesday, is forecast to show inflation accelerating further to 4.2%, according to a Bloomberg survey of economists. That would mark the highest reading since late 2022 and intensify pressure on the Fed to act.

The last time US CPI exceeded 4%, in September 2022, the Fed was in the midst of its most aggressive tightening cycle in four decades, raising rates by 75 basis points at consecutive meetings. The S&P 500 fell 24% over the following six months as the fed funds rate peaked at 5.5%. The 10-year yield surged past 4% for the first time since 2008.

A Hawkish Hold or a Cut? The Fed's Dilemma

Warsh, who took office last month after Trump nominated him to replace Jerome Powell, has previously expressed a preference for lower borrowing costs. But the inflation data has shifted the calculus. Hammack's hawkish comments suggest at least some FOMC members see rate increases as necessary, creating a potential split at the June meeting.

Trump has repeatedly called for the fed funds rate to be slashed to 1% or lower. On Sunday, he gave Warsh nominal space — "Kevin's excellent, I want him to do what he thinks is right" — before immediately contradicting himself: "But my feeling is, when a country is doing well, you shouldn't immediately raise rates to punish it. You should give it an incentive."

The tension echoes Trump's earlier clashes with Powell, whom he called an "idiot" and a "moron" for not cutting rates fast enough. The difference this time: inflation is higher, the labor market is stabilizing after a turbulent 2025, and the Fed's credibility is on the line. Friday's employment report showed the US added 228,000 jobs in May, above the 190,000 consensus estimate, giving the Fed more room to prioritize inflation fighting.

For investors, the key question is whether the Fed can maintain independence under political pressure while inflation remains sticky. If the central bank holds rates steady despite Trump's demands, it risks a political firestorm. If it cuts, it risks losing control of inflation expectations — a scenario that could push long-term bond yields higher and further pressure equities. The June 16-17 decision will set the tone for the second half of 2026.

This article is for informational purposes only and does not constitute investment advice.