Trump vs Warsh: Why Is His Own Fed Pick Raising US Interest Rates?

US President Donald Trump has turned his criticism towards his own pick to lead the Federal Reserve, Kevin Warsh, after the central bank raised its benchmark interest rate by 25 basis points to a range of 3.75% to 4%.

The hike was the Fed’s first since July 2023 and the first major rate decision under Warsh, who took over as Fed chair earlier this year. Trump, however, continues to demand much lower borrowing costs.

“Interest Rates in the United States should be 1%, or less, because we are the Best Credit in the World — BY FAR,” Trump wrote on Truth Social on Thursday. “LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!” he added.

The Federal Open Market Committee unanimously backed the quarter point increase, saying it would support a faster return of inflation towards the Fed’s 2% target.

“Inflation remains elevated. Today’s policy action will support a timelier return to the Committee’s 2 percent goal,” the Fed said in its policy statement. It also said economic activity was expanding at a solid pace.

Warsh defended the decision at his post meeting press conference, saying inflation had remained too high for too long. “The plain fact is that inflation is too high and has been for too long,” he said.

The decision came amid persistent inflation, renewed price pressures and a sharp rise in crude oil prices, which could keep inflation elevated for longer. Markets had largely expected the 25 basis point increase.

Warsh was selected by Trump to succeed Jerome Powell, whom the president had repeatedly criticised for not cutting rates quickly enough. Trump has long pushed for aggressive rate cuts, arguing that lower borrowing costs would support US economic growth.

Warsh had initially steered the Fed towards holding rates steady after taking office, but persistent inflation eventually pushed policymakers towards a rate increase. His first major rate decision has therefore moved in the opposite direction to Trump's demand for rates of 1% or less.

The Fed’s latest projections indicate that the increase may not be the last one this year. Sixteen of 18 policymakers expect at least one more quarter point hike by the end of 2026, while two expect rates to remain unchanged. The median projection puts the federal funds rate at 4.1% by the end of 2026.

Trump said he had spoken with Warsh and suggested he told the Fed chair that he could vote with the rest of the board because, in Trump’s view, it was “very hostile” and “very political”. Warsh did not confirm the conversation when asked whether he planned to meet Trump to explain the Fed’s decision.

“I don’t have anything for you in discussions with the president,” Warsh said.

Trump also linked the US trade deficit to interest rates, arguing that the US could achieve significant savings by ending trade with countries where it runs deficits. Trade deficits and Fed interest rate decisions are separate policy issues, although tariffs and trade policies can affect inflation and economic growth.