Fed Rate Cut or Hold? Kevin Warsh faces tough call as inflation stays elevated

Warsh took over as Fed chair earlier this year after Trump nominated him to replace Jerome Powell. At the time of his nomination, Warsh was widely expected to favour lower borrowing costs in line with Trump’s preferences. By mid-to-late 2026, however, sticky inflation (still well above 2%), a stable labor market, and internal FOMC hawkishness had shifted market and analyst focus toward the possibility of holds or even rate hikes rather than cuts.

That puts Warsh at odds with the White House just weeks before the Federal Reserve’s next rate-setting meeting on September 15-16.

Warsh warns that inflation is still a concern 

Speaking at the Fed’s annual Jackson Hole retreat on Friday, Warsh acknowledged that inflation remains elevated, according to NBC News. He did not say whether the Fed would cut rates at its next meeting. 

Warsh said the labour market appeared “stable”. That, he suggested, was one reason inflation was “more concerning”. 

His comments came after months of uncertainty over where he stands on interest rates. Market watchers had been concerned that Warsh was playing down the risk of prices rising again, NBC News reported. 

The uncertainty around his message has also drawn criticism.

Writing in Foreign Policy earlier this month, Benn Steil, a senior fellow and director of international economics at the Council on Foreign Relations, was blunt about Warsh’s 

communication. He said: “Warsh doesn’t know how to speak coherently about monetary policy.”

But the problem facing Warsh is much bigger than how he explains Fed policy. 

Trump wants rates much lower 

Trump has repeatedly said he wants the Fed’s benchmark interest rate to fall as low as 1%. That would be a major drop from the current target range of 3.5% to 3.75%, according to Reuters reporting carried by Barchart when Warsh was nominated.

Trump has continued to publicly support Warsh, even while attacking other Fed officials whom he believes are too focused on keeping rates high. 

At the same time, Trump has stepped up his efforts to remove Fed Governor Lisa Cook, a Biden appointee. Removing Cook would give Trump the opportunity to appoint another member and potentially create a majority for him on the Fed’s seven-member Board of Governors.

Inflation is making rate cuts harder 

The biggest problem for the White House is that the latest inflation numbers are not moving in the direction Trump wants. 

The Consumer Price Index rose 4.2% year-over-year in May 2026, the highest reading in three years, driven in large part by higher energy costs linked to Middle East tensions, according to Bureau of Labor Statistics data. (Subsequent readings moderated somewhat, with July CPI at approximately 3.4% year-over-year, though inflation remains well above the Fed’s 2% target.)

Fed Governor Lisa Cook has also warned about the inflation picture. According to her, both headline and core inflation are running about one percentage point higher than earlier expectations. 

That makes an immediate rate cut a much tougher decision for Warsh, especially if the Fed wants to avoid giving the impression that it is ignoring inflation. 

Fed officials are already divided 

The Federal Open Market Committee kept interest rates unchanged at its July meeting in a 9–3 vote. Three members (Beth Hammack, Neel Kashkari, and Lorie Logan) dissented and preferred a 25-basis-point rate hike, according to the official FOMC statement and minutes.

That is an important sign of the debate inside the Fed. Some officials are becoming more worried that inflation could remain high, even as others are watching signs of weakness in the job market. 

The tone of Warsh’s Jackson Hole speech was largely described by economists as relatively hawkish on inflation while deliberately avoiding detailed forward guidance, consistent with his previously stated preference for less explicit signalling.

Wall Street is not convinced Warsh can cut rates 

Financial markets are also doubtful that Warsh can simply give Trump the rate cuts he wants.

Matt Luzzetti, chief US economist at Deutsche Bank, said Warsh would first have to win over other Fed officials. “Warsh will have to convince his colleagues that rate cuts are appropriate this year,” Luzzetti said, according to Yahoo Finance. 

Luzzetti believes that will be difficult unless the labour market weakens or inflation falls sharply. 

Even though Warsh is the Fed chair, the final decision does not rest with him alone.

The FOMC has 19 policymakers, with 12 voting on each rate decision. The committee remains divided between officials who are worried about inflation staying high and those who are increasingly concerned about a weaker job market, according to the Associated Press account of Warsh’s nomination.

There is also a bigger risk for the economy if investors believe the Fed is cutting rates because of political pressure rather than economic conditions.

According to AP, investors could sell Treasury bonds if they lose confidence in the Fed’s independence. That could push up long-term borrowing costs, including mortgage rates, exactly the costs a rate cut is supposed to bring down.

The August CPI report is due only days before the Fed’s September 15-16 meeting. The new inflation data could leave Warsh with little room to avoid making a clear choice.

He will have to balance two very different demands: keeping inflation under control based on the Fed’s economic goals, or moving closer to the much lower rates Trump has been demanding.