Warsh faces dicey path to interest rate cuts

▪ Warsh to be confirmed

▪ Makary out as FDA head

▪ Trump to arrive in China

▪ Housing bill hurdles

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Kevin Warsh is poised to take leadership of the Federal Reserve at the end of the week, but that may not lead to the imminent interest rate cuts that President Trump has openly pushed for.

The latest inflation report released Tuesday as Warsh was confirmed to the Fed’s board revealed the consumer price index spiked to 3.8 percent year-over-year in April, well above expectations.

That’s the highest mark in nearly three years. It also exceeded the 3.6 percent annual increase in wages, meaning prices are rising faster than pay.

James McCann, a senior economist in investment strategy at the investment company Edward Jones, said the data shows U.S. households are continuing to feel the “brunt of surging energy costs.” He said the continued closure of the Strait of Hormuz raises the risk that the peak of inflationary pressure is still yet to come.

“The data present a difficult backdrop for incoming Fed Chair Warsh,” McCann said. “We believe spiking inflation will leave the Fed firmly on the sidelines for his first few meetings and potentially through the rest of 2026.”

The Senate is scheduled to confirm Warsh as chair today, putting him in place in time to succeed outgoing Chair Jerome Powell when his term ends Friday.

Trump has made clear for months what he expects from the incoming chair, as he has lambasted Powell repeatedly since starting his second term for not being more aggressive in lowering rates.

The push from the president was a key subject at Warsh’s confirmation hearing from last month, as Democrats pressed him on his approach if he were to lead the agency. Warsh maintained that he doesn’t believe Trump stating his views on rates threatens the Fed’s independence and that “independence is up to the Fed.”

“I’m committed to ensuring that the conduct of monetary policy remains strictly independent,” Warsh said at the hearing.

Those comments didn’t convince many Democrats, as all but Sen. John Fetterman (Pa.) voted against Warsh’s nomination to the board of governors Tuesday.

The Wall Street Journal reported how Warsh has spent the past year building a case for the Fed to provide the interest rate cuts that Trump has yearned for.

But with the latest inflation numbers, it’s becoming a difficult case to make.

Any delay is sure to test the patience of Trump, who is dealing with a public that’s becoming increasingly dissatisfied with his handling of the economy and the cost of living.

A CNN poll released this week found 70 percent of respondents said they disapprove of Trump’s handling of the economy, the highest percentage recorded from either of his terms. Other pollsters have recently obtained similar findings.

Trump’s overall approval rating has also been setting new low marks for his second term.

McCann said a “clear wobble” on the economy would need to take place to drive the Fed to lower interest rates in the near future as inflation remains well above the 2 percent target.

Data has shown the labor market remains sturdy, but that hasn’t transferred to Americans’ perceptions of the cost of living.

Even if Warsh does push for lower interest rates in the coming months, he’ll have to convince a majority of the 12 members of the Federal Open Market Committee to join him.

Powell will remain on the Fed’s board of governors for now, as his term runs into 2028. And so far, most of the committee has been in sync with him on interest rate decisions.

That may mean Trump will have to keep waiting.

▪ PBS: Inside the pressure campaign on the Fed.

▪ CNBC: Inflation breakdown for April in one chart.

Smart Take with Blake Burman

Trump’s face-to-face meeting with Xi Jinping comes with the backdrop of the Iran war, but trade is likely to dominate the coming days. I asked Rep. James Comer (R-Ky.), chair of the House Oversight and Government Committee, what a win would look like at the end of the trip.

“We need China for export markets for agriculture. We need China to buy more Boeing aircraft. We need China for energy exports now that we have the Trump administration opening up energy,” Comer told me. “We also have a problem with China… They’re funding Iran, and they’re the major supplier of all the fentanyl that still comes through the ports in the United States,” he added.

Whatever deals are announced, China would need to follow through in the coming months and years. For example, the phase-one trade deal struck in the first term is now an afterthought.

By the way, I want to hear from you. Tonight, we continue our Viewer’s Voice series, as I take your questions directly to those in power. Rep. Greg Murphy (R-N.C.) joins me on the show and will answer your questions. Ping our team here for a chance to have........

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