Trump eases pressure on Fed Chairman Kevin Warsh as inflation tops 4%

With inflation topping 4%, the Trump administration is easing off its long-standing calls for the Federal Reserve to immediately cut interest rates. That is giving new Fed Chairman Kevin Warsh an extended political grace period as he deals with a challenging economic environment, but underscores the depth of the pushback he could face if the mercurial president changes his mind. 

President Donald Trump said as recently as Wednesday that he wants the Fed to cut rates. Meanwhile several of the president’s top economic advisors have in recent interviews and writing stopped short of calling for near-term rate cuts, as they had before the Iran war sent some prices surging and Trump installed Warsh as the new Fed chairman.

What might look like division is really an indication that the Trump-Warsh relationship has shifted the political gravity of the Trump administration, a White House official said, speaking on condition of anonymity to describe behind-the-scenes conversations.  

“I wouldn’t say it’s necessarily a shift in policy, or how we’re seeing the data,” the official said. Rather, ​​”personnel is big for this president,” the official said. Trump has “confidence and faith” in Warsh and so will let him make decisions that he didn’t entrust to Jerome Powell, the prior chair.

“Since Epic Fury and since Warsh getting in there, I think the president’s position is a lot more nuanced than ‘there need to be rate cuts,'” the official said, adding that there is “no daylight” between the president and his advisors.

Inflation rose by 4.1% in the year ending in May, according to Bureau of Economic Analysis data released Thursday. The Fed wants that measure, personal consumption expenditures, to be at 2%. 

Elevated energy prices stemming from the war contributed significantly to the elevated reading. Taking them out along with volatile food prices, so-called core inflation rose 3.4%. 

Warsh said last week the Fed was keeping a close eye on data like that. “The Fed will deliver price stability,” he said. He and the Fed’s committee of interest rates voters opted to keep interest rates steady and end a longstanding plan that biased the Fed toward interest-rate cuts. 

Nearly half of the Fed’s policymakers said in projections released last week that they expected interest rates to go up this year. Markets now see a 79% chance of a rate increase by the end of December, according to CME FedWatch on Friday, and have no expectation of a cut.

White House trade advisor Peter Navarro wrote in an opinion essay Thursday that the new inflation data makes a “hold-steady case” for the Fed. 

Navarro had previously called for rate cuts. In an email to CNBC, he said his view that the Fed should now hold rates was consistent with his past…