Why the next Fed meeting could bring unwelcome news for Trump

Key Points:

• President Donald Trump urged new Federal Reserve Chair Kevin Warsh to be independent during his swearing-in, despite likely needing to deliver unwelcome news on interest rates that Trump has wanted lowered.
• Markets expect the Fed to maintain current interest rates at 3.5% to 3.75% due to solid job gains and inflation pressures, with rate cuts unlikely unless there is a significant negative shock to the labor market.
• Warsh, known for his hawkish stance on inflation and skepticism of the Fed’s past performance, may bring less communication and a different economic perspective influenced by mentors like Milton Friedman.
• Inflation remains above the Fed’s 2% target, with mixed signals from various measures; Warsh favors "trimmed mean PCE inflation," though some economists question its reliability amid current economic shocks.
• The Fed’s independence is under scrutiny amid past political tensions with Trump, including investigations and attempts to influence Fed officials, making Warsh’s leadership critical in maintaining the institution’s credibility.