Fed Chair Warsh Faces Inflation Concerns Amid Iran War

Market odds overwhelmingly favor the Fed to hold its short-term interest rate steady at 3.5%-3.75%, as it has since December. The Iran war has since March raised energy prices, as tankers remain largely unable to transit the Strait of Hormuz chokepoint between the oil-rich Persian Gulf and the wider world. That has a number of Fed officials, including Dallas Fed President Lorie Logan and Cleveland Fed President Beth Hammack, saying recently that they would rather not cut rates now, and in fact think increases might be in order this year.

Inflation jumped by 4.2% in May compared to the year before, according to consumer-price index data released Wednesday. That's a sharp increase, but Fed officials tend to parse the data in ways that make that effect look more muted. So-called core CPI inflation, which excludes energy and food, was up only 2.9%.

Warsh spent much of 2025 arguing that advancements in artificial intelligence were a good reason for the Fed to cut interest rates. But he said at his confirmation hearing in April that "this inflation risk is still something that's being talked about around kitchen tables and boardrooms." Until that subsides, rate cuts are likely off the table.

While the Fed might normally be expected to raise interest rates when inflation is speeding up, Warsh has said events like the Iran war are different. "What I'm most interested in is what's the underlying inflation rate, not what's the one time change in prices because of a change in geopolitics or change in beef, but what's the underlying generalized change in prices in the economy?" Warsh said at the hearing.

In Fed-speak, that's known as "looking through" a supply shock — letting a one-time problem like the Iran energy shock work through the system even if that one-time problem is becoming more drawn out than originally promised.

Trump on Wednesday signed up for that view, too. The latest inflation numbers were "great," Trump said in response to a reporter's question.

"When the war's over, it's coming down. It's going to come down like a rock," Trump said of inflation.

That jibes with comments Trump has made on more than one occasion that suggest he's willing to let Warsh act unimpeded on interest rates, despite the president's longstanding campaign to get Powell to cut.

Trump want higher interest rates, he said in an NBC News interview aired on Sunday. But he also wants Warsh to "do whatever he wants, and I don't want to have to a big influence on him."

Trump made similar comments at Warsh's White House swearing-in on May 22. "I want Kevin to be totally independent," Trump said then. "Just do your own thing and do a great job."

Those remarks are a sharp U-turn from what Trump said about Powell — and more importantly what he did to try to get Powell to change. Trump said he wanted interest rates to go as low as 1% and said Powell wasn't cutting out of spite. "I think he hates me," Trump said of Powell last year, and called the Fed chair "stupid."

Powell said later that he wasn't bothered by whatever Trump said. But the president didn't stop with name-calling. He attempted to fire Fed governor Lisa Cook over allegations that she had cheated on her mortgage. (She fought back in court, and the Supreme Court is expected to rule soon on that matter.)

Trump also said there was "criminality" involved in cost overruns in the Fed's office renovations. U.S. Attorney for the District of Columbia Jeanine Pirro launched a criminal investigation into the spending and Powell's testimony about it to Congress. A judge blocked her subpoenas in the case and is expected to rule soon on Pirro's subsequent request that the whole matter be vacated.

The upshot of those attempts to influence Powell may be that Trump has left himself with fewer means to leverage Warsh, should he want to do so. But Warsh came into office saying openly that he was willing to listen to the president on rates, though the call would be up to the Fed.

The White House didn't answer an email Wednesday asking if Trump and Warsh had spoken about inflation. But Warsh has been in touch with the administration. He and Treasury Secretary Scott Bessent spoke during the confirmation process, and after Warsh was voted in, the two quickly commenced with the tradition of regular meetings between Fed chair and Treasury secretary.

All that amounts to a kind of political honeymoon for the new Fed chair. How exactly he wants to use it will start becoming clear next week. The Fed said Wednesday the chair will hold his first press conference on June 17, right on schedule.