US President Donald Trump arrives with Kevin Warsh, the next Chairman of the Board of Governors of the Federal Reserve System, for Warsh’s swearing-in ceremony at the White House in Washington, DC, USA on May 22, 2026.
Jonathan Ernst | Reuters
With inflation topping 4%, the Trump administration is easing its longstanding demands that the Federal Reserve immediately cut interest rates. This gives new Fed Chairman Kevin Warsh an extended political grace period to deal with the difficult economic environment, but it also highlights the depth of the backlash the mercurial president could face if he changes his mind.
President Donald Trump has said he wants the Fed to cut rates by Wednesday. Meanwhile, several of the president’s economic advisers have said in recent interviews and writings that the Iran war has caused some prices to soar and stopped short of calling for short-term interest rate cuts, as they did before Trump installed Warsh as the new Fed chairman.
The appearance of a divide actually indicates that the relationship between Trump and Warsh has changed its political importance in the Trump administration, said a White House official, speaking on condition of anonymity to discuss behind-the-scenes conversations.
“I wouldn’t necessarily say it’s a change in policy or a change in how we look at the data,” the official said. Rather, “personnel matters are important to this president,” the official said. President Trump has “confidence and confidence” in Warsh and intends to delegate decisions to him that he did not leave to former chairman Jerome Powell.
“Since Epic Fury and since Mr. Warsh stepped in, I think the president’s position has become much more nuanced than, ‘We need a rate cut,'” the official said, adding that the relationship between the president and his advisers “will never see the light of day.”
Inflation rose 4.1% in the year to May, according to Bureau of Economic Analysis data released Thursday. The Fed wants to keep its measure, consumer spending, at 2%.
The soaring energy prices caused by the war contributed significantly to this increase. Combined with volatile food prices, so-called core inflation rose 3.4%.
Warsh said last week that the Fed is closely monitoring such data. “The Fed will deliver price stability,” he said. He and his constituents on the Fed’s interest rate committee chose to keep interest rates on hold, ending a longstanding plan that had biased the Fed toward lowering rates.
Nearly half of Fed policymakers said in an outlook released last week that they expect interest rates to rise this year. The market currently sees a 79% chance of a rate hike by the end of December, according to CME FedWatch on Friday, with no expectations for a rate cut.
White House trade adviser Peter Navarro said in an opinion essay Thursday that the new inflation numbers support a “solid case” for the Fed.
Mr. Navarro had previously called for rate cuts. He said in an email to CNBC that his view that the Fed should keep interest rates current is consistent with past arguments and the president’s current position. He said the point of his essay was that it would be “foolish” to consider raising interest rates now.
“Interest rates should be lower, and they would have been lower if the Fed had done the right things over the past year,” Navarro said in an email.
Treasury Secretary Scott Bessent said Tuesday at an event in New York that Mr. Warsh would be “independent and do what he wants.” In an interview with CNBC the next morning, Bessent declined to say whether the Fed should cut interest rates. But he says people should “keep an open mind.”
“Let’s look at what inflation looks like behind the scenes” of the Iran conflict, Bessent said.
Some in the market believed this was a sign that Mr. Bessent had turned to raising interest rates under the Warsh administration.
“We have heard the green light for the Fed to raise rates,” Neil Dutta, head of economics at Renaissance Macro Research, said in a note to clients on Tuesday.
The Treasury Department declined to comment on how Bessent’s views align with Trump’s.
Kevin Hassett, chairman of the White House National Economic Council, also indicated support for the Fed’s suspension under the Warsh administration. “In the first meeting, you want to be grounded and stable,” Hassett told CNBC on Tuesday.
President Trump told Warsh he wanted him to “do whatever he wanted” and “be completely independent.”
But on Wednesday, the president returned to calling for rate cuts. “We need low interest rates. Low interest rates will solve everything, and they’ll fix it now,” Trump said at an Oval Office event.
Energy prices fell following an agreement to reopen the Strait of Hormuz, an international waterway that serves as a barrier to global oil supplies. The average price of a gallon of gasoline in the United States on Friday was $3.90, down 58 cents from a month ago, according to AAA.
However, with the situation in the Middle East still unstable, it is unclear how long the decline in prices will last and exactly what the inflation situation will be at the Fed’s next meeting in late July. Iranian forces attacked a cargo ship in the strait on Thursday.
That means Warsh will need more patience. The White House said it was just being provided.
“President Trump and his administration have said the same thing all along: Everyone has confidence in Chairman Kevin Warsh, and despite the temporary disruption to energy markets, the Trump administration’s supply-side policies are cooling inflation and paving the way for rate cuts,” White House Press Secretary Khush Desai told CNBC.
