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
Strange things may happen in the coming days. Federal Reserve Chairman Kevin Warsh may do exactly what his predecessor Jerome Powell did on interest rates, only to get a very different reaction from President Donald Trump.
President Trump’s unexpected comments Wednesday on the latest inflation numbers may give Warsh some leeway on interest rates.
“I love inflation,” he said in the Oval Office hours after the Bureau of Labor Statistics revealed annualized inflation rose 4.2%. If the president is unconcerned about the highest inflation rate in three years, Mr. Warsh may be able to temper expectations for an early cut in interest rates.
The president had spent years criticizing and trying to undermine Mr. Powell because of what he saw as Mr. Trump’s stubborn refusal to cut interest rates faster and deeper than the Fed wanted. But now that Warsh has been confirmed as chairman and the first rate-setting meeting is scheduled for next week, President Trump is signaling that he will not oppose unless Warsh cuts rates immediately.
Market odds overwhelmingly favor the Fed keeping short-term interest rates unchanged at 3.5% to 3.75%, as they have been since December. The Iran war has driven up energy prices since March as tankers are still largely unable to pass through the Strait of Hormuz, a choke point between the oil-rich Persian Gulf and the rest of the world. That’s why a number of Fed officials, including Dallas Fed President Laurie Logan and Cleveland Fed President Beth Hammack, have recently said they don’t want to cut rates now and, in fact, think raising rates might be appropriate this year.
Inflation rose 4.2% year-on-year in May, according to consumer price index data released Wednesday. That’s a sharp increase, but Fed officials tend to parse the data in a way that makes the effect appear more modest. So-called core CPI inflation, which excludes energy and food, rose only 2.9%.
Warsh spent much of 2025 arguing that advances in artificial intelligence are reason enough for the Fed to cut interest rates. But he said during his confirmation hearing in April that “this inflation risk is still something that’s being talked about around kitchen tables and boardrooms.” Until the situation subsides, interest rate cuts are likely to be off the table.
Normally, one might expect the Fed to raise rates when inflation is accelerating, but Warsh said events like the Iran war are different. “What I’m most interested in is, what is the underlying inflation rate? Not a temporary price change due to changes in geopolitics or changes in beef, but what are the underlying changes in general prices in the economy?” Warsh said during the hearing.
In Fed parlance, this is known as “seeing through” supply shocks. Even if one-off issues like the Iranian energy crisis last longer than originally promised, they have system-wide effects.
On Wednesday, President Trump echoed that view. In response to a question from a reporter, President Trump said the latest inflation numbers were “excellent.”
Regarding inflation, President Trump said, “When the war ends, inflation will fall. It will fall like a rock.”
This is consistent with comments President Trump has made on multiple occasions indicating his intention to allow Warsh to act unhindered on interest rates, despite the president’s years-long campaign for Powell to lower rates.
President Trump said in an interview with NBC News that aired Sunday that he wants to raise interest rates. But he also wants Warsh to “do whatever he wants to do, and I don’t want him to have too much influence.”
President Trump made similar comments at President Warsh’s White House swearing-in ceremony on May 22. “I want Kevin to be completely independent,” Trump said at the time. “Do what you do and do a great job.”
These comments are a significant shift from what Mr. Trump has said about Mr. Powell and, more importantly, what Mr. Trump has done to try to get Mr. Powell to change. President Trump has said he wants interest rates to drop to 1%, and Powell said he did not make the move out of anger. President Trump said of Powell last year, “I think he hates me,” and called the Fed chairman a “stupid.”
Powell later said he didn’t care what Trump said. But the president didn’t stop at name-calling. He tried to fire Fed Director Lisa Cook over suspicions that she had fraudulently repaid a mortgage. (She fought back in court, and the Supreme Court is expected to rule on the case soon.)
President Trump also called the cost overruns for renovations to the Fed’s offices “criminal.” Jeanine Pirro, the U.S. attorney for the District of Columbia, has launched a criminal investigation into the spending and Mr. Powell’s congressional testimony about it. A judge in the case has blocked her subpoena and is expected to rule soon on Pirro’s subsequent request to cancel the entire matter.
The result of these attempts to influence Powell may be that President Trump will have fewer tools to leverage Warsh, should he wish to do so. But after taking office, Mr. Warsh said publicly that while decisions were up to the Fed, he would listen to the president’s opinion on interest rates.
The White House did not respond to an email Wednesday asking whether Mr. Trump and Mr. Warsh had talked about inflation. But Mr. Warsh has been in contact with the administration. He and Treasury Secretary Scott Bessent met during the confirmation process, and as soon as Warsh was voted in, the two sides began the tradition of regular meetings between the Fed chairman and the Treasury secretary.
All of this amounts to a kind of political honeymoon for the new Fed chairman. Exactly how he wants to use it will start to become clear next week. The Fed announced Wednesday that its chairman will hold his first press conference as scheduled on June 17.
