Trump eases pressure on Fed Chairman Kevin Warsh as inflation tops 4%

• Inflation hit 4.1% in May (core inflation at 3.4%), well above the Fed's 2% target, driven largely by elevated energy prices from the Iran conflict
• Trump economic advisers including Peter Navarro, Scott Bessent, and Kevin Hassett have backed off calls for immediate rate cuts, supporting Warsh's decision to hold rates steady at his first meeting
• Gas prices have fallen 58 cents to $3.90 per gallon following a deal to reopen the Strait of Hormuz, though Middle East instability continues with Iranian forces seizing vessels as recently as Thursday

Summary

Key Development: President Trump is reducing pressure on newly appointed Federal Reserve Chairman Kevin Warsh to immediately cut interest rates, despite inflation rising to 4.1% in May—well above the Fed's 2% target. Core inflation (excluding food and energy) stands at 3.4%.

Main Figures:

• Kevin Warsh: New Fed Chairman sworn in May 22, 2026, opted to hold rates steady in his first meeting
• Donald Trump: President publicly calling for rate cuts but privately showing patience with Warsh
• Scott Bessent (Treasury Secretary) and Peter Navarro (Trade Adviser): Pivoting from previous rate-cut advocacy to supporting a "hold-steady" approach

Market Context: The shift follows the Iran war's impact on energy prices, which contributed significantly to elevated inflation readings. However, gas prices have since declined 58 cents to $3.90/gallon following a deal to reopen the Strait of Hormuz, though Middle East instability persists.

Political Dynamics: White House officials emphasize this isn't a policy shift but reflects Trump's confidence in Warsh as a "new face at the Fed," contrasting with previous Chairman Jerome Powell. The administration is granting Warsh an extended "grace period" to navigate the challenging economic environment.

Market Implications: Nearly half of Fed policymakers now project no rate cuts this year, per CME FedWatch data. Some analysts interpret Treasury Secretary Bessent's comments as signaling openness to rate increases under Warsh. The Fed's next meeting is scheduled for late July, where clearer inflation trends may emerge.

The administration maintains its supply-side policies will ultimately cool inflation and enable future rate cuts, while emphasizing full confidence in Warsh's independence.