Trump’s rate-cut calls raise central bank independence concerns
Kevin Warsh, the new Federal Reserve chair appointed by President Donald Trump earlier this year, is expected to address the Jackson Hole symposium Friday in Grand Teton national park, where the world’s most powerful central bankers gather annually. The Trump-appointed chair has signaled reluctance to use his speech for the “more traditional setup” of dropping hints over how the central bank may respond to inflationary pressures when its officials next meet to set interest rates in September and December. Instead, he has said his address could be “focused on bigger questions,” including concerns over productivity and demographics.
The annual symposium, normally a blue-riband event in the financial calendar, takes place against a backdrop of anxiety over Trump’s handling of the economy and, according to the Guardian, investor fears that the war with Iran is stoking inflation. The yield on long-term US Treasury debt at first fell before rising back toward its highest level since 2007, with investors fretting over the inflationary impact and the US national debt surpassing $40tn for the first time.
Selling pressure has intensified in the $30tn (£22tn) US government debt market despite efforts by Treasury Secretary Scott Bessent to assuage investor worries after he committed to at least double Washington’s purchases of US Treasury bonds. The bond selloff has rocked global financial markets.
Trump has called on the Fed to cut rates, and according to the Guardian, his demands have fueled investor concerns about the central bank’s independence. Warsh was accused by investors of sending confusing signals in his first press conference as Fed chair in July, after he expressed his commitment to curbing inflation without giving details. Warsh has previously signaled reluctance to “spoon-feed” financial markets over how it plans to set interest rates to keep fast-rising prices in check.
Dan Coatsworth, head of markets at the stockbroker AJ Bell, said: “Investors will be looking for a comfort blanket when Federal Reserve chair Kevin Warsh addresses the Jackson Hole meeting.” James Smith, an economist at ING Bank, said: “By offering less commentary on where rates are headed … [Warsh] risks injecting yet more volatility into an already febrile bond market.” Stephen Brown, an economist at the consultancy Capital Economics, said Warsh maintaining a tight-lipped approach could be risky. “He might even stick to the official subject of the symposium, ‘Financial Innovation: Implications for Payments and Policy’, in which case his speech could be something of a snoozefest,” Brown said. “That said, even that approach would risk giving the impression that Warsh is not taking inflation risks seriously, so there could still be volatility in markets.”
The Fed held rates in July. Trading in financial markets reflects investor expectations for another hold in September, although a rise is thought possible. Markets anticipate at least one, and possibly two, quarter-point increases by the middle of next year.