Trump's rate hike comments place renewed scrutiny on the Fed's independence

The Federal Reserve’s first rate hike in three years has ushered in a new twist to the already unusual relationship between President Donald Trump and the world’s most powerful central bank.

Trump raised eyebrows on Wednesday evening by appearing to suggest that he gave Kevin Warsh, his handpicked Fed chairman, permission to raise rates – even though it was the “wrong” move. The president implied that Warsh had no choice but to embrace a rate increase because the Fed chief was outnumbered on the “hostile” rate-setting committee he oversees.

“I talked to Kevin and I said you might as well vote with the board because it’s not going to matter…I said, ‘Do what you want because it doesn’t matter’ because he doesn’t have the votes,” Trump told reporters.

The remarks raise plenty of questions about how much – if at all – Warsh is consulting with a president who has been willing to cross red lines in his quest for dramatically lower interest rates.

Those questions are especially sensitive because the Fed is designed to be insulated from the political winds in Washington. Central bankers are required to make trillion-dollar decisions on whether to raise or lower interest rates based on what’s best for the economy, not for the political party in power.

Tellingly, some Fed watchers and former officials reacted to the remarks with disbelief.

“It’s an unusual and unfortunate comment to make. Clearly, the Fed chair does not need the president’s permission to raise rates,” Eric Rosengren, former president of the Federal Reserve Bank of Boston, told CNN on Thursday. “The implication is that the chair got a hall pass. I have no idea how truthful the comment was.”

Krishna Guha, vice chairman and head of economics and central bank strategy at Evercore ISI who criticized Warsh’s initial stumbles, dismissed Trump’s claims.

“The market believes – and with good grounds – that Kevin Warsh owned this decision and that the committee was strongly united behind him,” Guha said. “There is no evidence here or to the market at large that Warsh was dragged into this by colleagues – or permissioned by the president.”

‘We stay in our lane’

The risk is that Trump fuels suspicions that swirled on Wall Street this summer that Warsh may not be truly independent. That’s dangerous because a Fed doing the White House’s bidding could lose control of market-set interest rates, dramatically increasing the cost of mortgages and car loans. And a loss of faith in Fed independence could unhinge inflation expectations among investors and consumers.

The Fed declined to comment to CNN about Trump’s remarks.

For his part, Warsh tap-danced around questions related to the man who nominated him.

“I’m not a Wall Street newsletter. Part of the independence of the Federal Reserve is we stay in our lane. Independence is a two-way street,” Warsh said during the press conference on Wednesday. “We’ll let people that do trade policy and fiscal policy stay in their lane, too. That’s how we can stand up here and call them the way we see them.”

Asked by a reporter when he last spoke with the president, Warsh said: “I don’t have anything for you on discussions with the president.”

Tim Mahedy, CEO and chief economist at research firm Access/Macro, said he found that response from Warsh “strange.”

“The right answer is, ‘I didn’t talk to the president.’ I don’t think the president is talking to Warsh beforehand. That would be shocking,” said Mahedy, a former official at the IMF and San Francisco Fed.

‘The day the Fed became Warsh’s’

The other risk is that, intentionally or not, Trump diminishes Warsh as an ineffectual leader – just as he appeared to be starting to find his footing.

“It makes it seem like Warsh has no control over this committee, like he was completely ineffectual in convincing his colleagues,” said Mahedy.

Warsh emerged from the meeting looking independent. Not only did he preside over a rate hike the White House did not want, but he explained it clearly and with the unanimous support of his colleagues – including former Fed Chair Jerome Powell.

“It felt like the day the Fed became Warsh’s Fed,” Evercore’s Guha said. “He was a lot more assured, coherent and credible yesterday. What he’s saying basically adds up.”

But now if Warsh and a majority of his colleagues on the committee decide against a rate hike, he will face questions about whether the president put his finger on the scale.

In the past, most presidents have gone out of their way to even avoid the appearance of interfering with the Fed because it was widely accepted that an independent Fed builds confidence.

Trump praises Warsh – for now

None of this is to say Trump unleashed on the Fed in a way that would have unnerved investors. In fact, Trump’s initial reaction to the first rate hike under Warsh was relatively mild, especially compared with his relentless and deeply personal condemnation of Powell, his last handpicked Fed chair.

While Trump bashed Warsh’s colleagues as “very hostile” and “very political,” he singled out the Fed chief for praise. “He’s a good man, Kevin Warsh,” Trump said.

“People were fearful of a fierce backlash from the president against this decision to raise rates and a resumption of the conflict between the White House and the Fed,” Guha said.

Of course, the Warsh-Trump relationship will continue to evolve, likely guided by what happens next to inflation, borrowing costs and the path of the S&P 500 and all-important Treasury rates.

Mahedy said he worries that the relationship will break down if the Warsh-led Fed continues to raise rates – as many suspect it will be forced to.

“It’s not hard to see more blame being put on the Fed and Warsh – and then it will start to look a lot like Powell,” said Mahedy. “It’s kind of a train wreck – but a slow-moving one.”

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This article originally appeared on CNN Business at https://www.cnn.com/2026/09/17/economy/fed-trump-rate-hike-warsh