Trump replaced a hawk with a hawk...Warsh raises interest rates in advance of the mandate according to the president’s wishes

The issue is no longer hypothetical. When Kevin Warsh was nominated to head the Federal Reserve, and then assumed his presidency on May 22, 2026, many investors read the choice through one lens: a new president appointed by Donald Trump after an ongoing campaign to demand a rapid reduction in interest rates, must be more prepared to respond to the desire of the White House than his predecessor, Jerome Powell. This reading proved to be hasty, as Warsh’s record and view of inflation and institutional independence do not fit with the image of a “dove” president who reduces interest rates whenever political pressures rise. The decision of the Open Market Committee on September 16 came to test this hypothesis, as the committee, with a consensus of twelve members, raised the target range for the federal funds rate by a quarter of a percentage point to 3.75% - 4.00%. The Committee did not present the decision as a response to market fluctuations or the desires of the executive branch, but rather explicitly linked it to its dual mandate: to support maximum employment and restore price stability. Its statement confirmed that economic activity is growing at a solid pace, that domestic spending is flexible, capital investment is strong, and the labor market is cohesive, while inflation remains high. Therefore, it saw that raising interest supports a faster return to the inflation target of 2 percent, and in all of this there is no place for desires, but rather for what the data says. This is the precise meaning of describing Warash as a hawk in the current circumstance, as a hawk is not a central governor who raises interest rates in all circumstances, nor one who rejects a reduction in principle, but rather he is one who provides price stability and prevents the consolidation of Inflation depends on immediate political or market gains, and requires convincing evidence that price pressures have subsided before moving onFacilitation. If inflation declines sustainably or the labor market is clearly weak, then reducing interest rates under this approach becomes a decision consistent with the mandate and cannot be conceded. As for the reduction in an environment of high inflation and strong growth and investment, just to reduce the cost of financing, it is a replacement of monetary analysis with political desire. The committee’s official expectations support this reading, as it raised the expected median personal consumption expenditure inflation for the year 2026 to 3.7%, compared to 3.6% in the June forecast, and at the same time raised the real growth forecast to 2.3% from 2.2%, while lowering the unemployment forecast to 4.1% from 4.3%. The expected median interest rate path at the end of 2026 also rose to 4.1%, from 3.8% in June. These are not verified facts about the future, but rather conditional expectations issued by the members of the committee, but they show that the decision to raise was not issued in an economy that is clearly heading towards stagnation or low inflation, but rather in an economy whose price pressures the committee believes still require the removal of part of the monetary easing.

On the other hand, on the same day of the decision, President Trump reaffirmed his call for the interest rate to fall to 1 percent or less and for this to happen quickly! There are two different visions of the interest function between the two positions. The president views it from the perspective of the cost of capital, the attractiveness of investment, and the cost of servicing debt, which are understandable economic and political considerations. As for the Central Bank, by virtue of its mandate, it looks at it from a broader angle: Are monetary conditions compatible with price stability and a balanced labor market? It is not right for the importance of investing in factories, infrastructure, and data centers to turn into a justification for ignoring the cost of more established inflation, because high inflation ultimately raises the risk premium, distorts the decision to save and invest, and makes long-term financing less certain, not more attractive. The decision should also not be portrayed as a personal confrontation between Warsh and Trump, as the decision was issued unanimously, not by an individual decision from the new president, and the independence of the Federal Reserve does not mean the absence of discussion between the executive branch and the central bank, but rather it means that the interest rate should not be the result of political orders. The importance of the September decision lies in the fact that it demonstrated in practice that the Chairman of the Committee nominated by the President does not abandon the inflation standard and the legal mandate when this conflicts with the stated political preference. This is an institutional connotation stronger than any speech about independence. Also, replacing Powell with Powars does not mean complete similarity between the two men on all files, as they may differ in the method of communication, the size of the balance sheet, the organization of the financial sector, and the role of the Federal Reserve outside the scope of monetary policy, but the September 16 decision demonstrated a fundamental convergence on the most important point.Sensitivity: The interest is not adjusted to please the president, but rather according to an integrated reading of the data, expectations, and the risks of deviation from the goal of price stability. From this angle, it is correct to say that Trump replaced a hawk with a hawk, not because Warsh always prefers to be strict, but because the first real test put him in front of a clear choice between a desired political reduction and an increase that the members of the committee considered based on the data, so he chose with the committee what he considered necessary to achieve the mandate. There is a social dimension that is largely absent from the controversy surrounding the interest rate, as the decision to raise it, in an environment of still high inflation and a solid economic activity and labor market, does not serve asset owners or financial institutions alone, but rather protects, first and foremost, power. Purchasing for the most needy segment, as low-income families spend a larger percentage of their income on food, housing, and energy, and have less ability to hedge against rising prices or transfer their savings into assets that maintain their value. Therefore, letting inflation take hold under the pretext of reducing the cost of borrowing imposes a hidden and recurring tax on this segment, which is the erosion of the real wage and the ability to spend on necessities. This does not mean that raising interest is costless, as excessive tightening may weaken employment and raise the burden of borrowing, two effects that affect the families themselves, but the function of rational monetary policy is to balance these two risks, not to choose one of them automatically. In the circumstances described by the Committee, limited action to restore price stability becomes a protection of real wages, small savings, and the certainty that families need in making their livings, rather than a response to the interest of markets. From this angle, doing what is required by the data and legal authorization is not a conflict withIt is in the interest of the most needy segment, rather it is a condition to protect it from the more severe and longer-term cost of continued inflation. Thus, the broader message to the markets is not that a long tightening cycle has become inevitable, nor that interest rates will not decrease later, as monetary policy is by nature conditional on the data, and the path may change if inflation decreases or labor market conditions change, but the message is that interest expectations should not be based on the proximity of the Reserve Chairman to the President or on the desires of the White House. Any head of a monetary authority who shows that he is capable of making politically uncomfortable decisions when required by the data strengthens, not weakens, confidence in the currency and in a predictable monetary policy.

Founder of Guatha Counseling Centre