Trump, Aides Clamor To Sway Fed’s Policy. Is Kevin Warsh In A Fix?

Ahead of the Federal Reserve meet on September 15-16 to decide on interest rate, top aides in the Trump administration are parroting the president's own recipe for economy: They want to stall a potential rate hike, and if possible enforce a cut.

The development comes as the markets have already priced in a 60 percent chance of a rate hike, mostly after the US employers added 162,000 jobs in August.

The Bureau of Labor Statistics showed that nonfarm payrolls gained 162,000 jobs last month, compared to the 53,000 expected by analysts. It is the largest increase since March.

BLS noted that employment increased mostly in "food services and drinking places and in local government education," while the information industry shed jobs.

US President Donald Trump, Vice President J.D.Vance and Treasury Secretary Scott Bessent were among the galaxy of top aides who have voiced caution against a rate cut, CNBC reported.

This is an unusual public clamor by the administration's top aides ahead of a Fed meet. Many of the Trump administration have also called for a rate cut instead. The idea seems to be to facilitate a narrative that pressurizes the Fed under its new chair Kevin Warsh, a Trump appointee, to not hike rates, rather than forcing a cut.

President Trump had many times made known his aversion to Fed not cutting rates in his second term, and his public utterances have been interpreted as pressure tactics to sway the Fed's opinion. But the present clamor assumes significance as the Fed is now chaired by Warsh, who was anointed by Trump.

Trump has stopped short of criticizing Warsh, though he had slammed former Fed chair Jerome Powell in no uncertain terms on the same issue.

The US President also seems to be in a mood to escalate the issue by warning that he would halt trade with countries with which the US runs a trade deficit if the Fed did not cut rates. Tariffs and trade pacts are favorite political tools deployed by Trump to achieve diplomatic gains.

Trump was indirectly trying to sway the Fed's opinion when he said a rate hike now would be "careless." In other words he was driving home his theory that a rate hike would hurt sectors in the US and drag them away from prosperity.

Vance had earlier signaled that he would prefer a lowering of rates by the Fed."We're doing a lot of things to try to keep those interest rates down, but it would be nice to have some help from the Federal Reserve," the US Vice President said.

Bessent told CNBC that the Fed typically doesn't raise rates during a supply shock until there are second- or third-order inflationary effects. These statements have mounted pressure on the Warsh-led Federal Reserve.

The Fed meet comes just two months ahead of the midterm polls in November, in which the Trump-led Republicans are facing an uphill battle to cling on to their seats. Several polls have figured out that there is widespread voter discontent against price rise. The Trump administration sees this as a moment to seize to gel with voters, and perhaps cling on to a razor-thin majority. The administration fears that if thais does not happen, there would be a backlash against the policies championed by it, buoyed by a resurgent Democratic Party.

In August, The Wall Street Journal reported that Trump had a word with Warsh, a story which was publicly acknowledged by many top aides. Trump has denied multiple meetings saying he had only spoken to Warsh once after the latter assumed office. Warsh has been overtly keen to not even drop hints about the Fed's policy direction by mooting the idea that the data will dictate the policy, though he acknowledged that the political spectrum has the right to voice their opinion.

Hence, this month's Fed meet assumes critical importance for investors, Republicans, the electorate and more than anyone else Fed Chair Kevin Warsh. Key inflation-linked data is expected to come out next week.

In his Jackson Hole speech, Warsh had said the Fed's focus needs to be on inflation. Warsh would have to do a huge somersault to not stick to that as Trump watches from the sidelines.