Trump accuses Fed of political motives in raising interest rates

Trump was in a constant quarrel with former Fed Chairman Powell because he did not deliver interest rate cuts on request. Under his successor, the key interest rate is now even rising. The US President suspects a conspiracy. Market observers, on the other hand, react with relief.

US President Donald Trump has accused the board of the US Federal Reserve (Fed) of “political reasons” in raising the key interest rate. Federal Reserve Chairman Kevin Warsh is “a good man,” Trump told journalists in North Carolina. "But no matter how well he does his job, he is dealing with a hostile board." He added: "They are raising interest rates to do as much damage to Trump as possible (...) So they are raising them solely for political reasons."

The Fed raised the key interest rate by 0.25 percentage points to the range of 3.75 to 4.00 percent on Wednesday. It hasn't touched it since December 2025, and the last interest rate increase was in July 2023. In view of the ongoing and high inflation, there were fears on the financial markets that a further interest rate break would have significantly questioned the credibility of the central bank.

In May, Trump put his confidant Warsh at the head of the central bank to ensure the desired low interest rates, which would make real estate loans cheaper. However, the US war against Iran, which Trump started a good six months ago, is massively driving up energy prices and thus also inflation.

Experts believe the Fed's credibility has been preserved

Economists and experts are relieved that the Fed, even under Kevin Warsh, is not allowing itself to be influenced by the US President. "Today's interest rate move is not just an interest rate move, it also ensures the credibility of the US Federal Reserve," commented chief economist Thomas Gitzel from VPBank. The tightening of monetary policy is evidence "that the committee is walking the talk to bring inflation back to target levels," wrote Jeff Schulze, head of investment strategy at the Franklin Templeton Institute.

“Now the Fed, under the leadership of Kevin Warsh, is doing the opposite of what US President Trump wants,” commented analyst Elmar Völker from LBBW. He was alluding to the ongoing dispute between Donald Trump and Warsh's predecessor Jerome Powell. He came under Trump's regular barrage of insults and demands for his resignation, also because he resisted the president's attempts to intervene and insisted on the central bank's certified independence.

Experts considered an interest rate cut, as Trump has long been demanding, to be unrealistic. This would have had no basis on current economic indicators. Asked about the issue at a press conference, Warsh said: "Today's decision was the right one to fulfill Congress's mandate to ensure stable prices." He later added: "Part of the independence of the Federal Reserve is that we concentrate on our area of ​​expertise."

Monetary policy on a restrictive course

Meanwhile, it might not be the only interest rate hike this year. Given current inflation, 16 of the 18 Fed members surveyed currently expect at least a one-step increase (0.25 percentage points). Of these, four can imagine even more far-reaching streamlining. A similar picture emerges for 2027: 14 members expect a key interest rate of 4.00 to 4.25 percent for the year, a slight majority of which expect 4.25 to 4.5 percent.

Further steps would also fit the Fed's well-known approach, said US chief economist Robert Sockin from the financial services provider PGIM: "Historically, the Fed does not tend to adjust its monetary policy with a single increase or decrease." As a rule, further steps would have to follow. Maxime Darmet-Cucchiarini, senior economist at Allianz Trade, expects a second rate hike in December.

Almost a week ago, the European Central Bank (ECB) increased its key interest rate for the second time this year in view of the rise in inflation due to the Iran war. The central bank raised the deposit interest rate, which is important for banks and savers, from 2.25 to 2.5 percent.