Inflation Surpasses 4%, Causing Trump to "Ease Up"? White House Temporarily Pauses Rate Cut Pressure, Giving Walsh "Room for Independent Decision-making"

On Friday (June 26), as the U.S. inflation rate rose to 4.1%, the Trump administration's stance toward the Federal Reserve underwent a subtle change. Although U.S. President Trump continues to openly call for interest rate cuts, several senior White House economic officials have recently stopped demanding immediate rate cuts by the Federal Reserve, shifting instead to support a “wait-and-see” approach. Analysts believe that Kevin Warsh, the new Chair of the Federal Reserve, is getting a rare “political buffer period,” allowing him to stick to his hawkish anti-inflation stance amid high inflation and uncertainty in the Middle East.

Subtle Change in White House Rate Cut Stance

Recently, Trump has repeatedly stated in public that he hopes the Federal Reserve will lower interest rates to stimulate the U.S. economy.

However, unlike his previous frequent urging for rate cuts, the core White House economic team has made a noticeable adjustment in their attitude.

An anonymous White House official stated that this does not mean a fundamental shift in economic policy, but rather that Trump has full trust in Warsh and is therefore willing to give him more policy autonomy.

The official said: “The President trusts Warsh and will let him make decisions that he would not have left to Powell.”

The official also noted that since the escalation of the U.S.-Iran conflict and Warsh's appointment as Fed Chair, Trump has become more cautious on interest rate issues, no longer simply insisting that “rate cuts are a must.”

Inflation Rises to 4.1% Federal Reserve Continues to Hold Steady

Data released by the U.S. Department of Commerce that day showed that the U.S. Personal Consumption Expenditure (PCE) Price Index rose 4.1% year-on-year in May, significantly higher than the Federal Reserve's long-term target of 2%. The Core PCE, excluding food and energy prices, increased by 3.4% year-on-year, also remaining at a high level.

In last week's first policy meeting, Warsh stated that the Fed’s most important task remains restoring price stability.

The meeting ultimately decided to keep interest rates unchanged and canceled the previously long-standing guidance favoring rate cuts, sending a more hawkish policy signal.

The latest dot plot shows that nearly half of Fed officials still expect rate hikes this year. According to the CME FedWatch tool, as of Friday, the market estimates about a 79% probability that the Fed will raise interest rates before the end of the year, virtually abandoning expectations for any rate cuts this year.

Senior White House Officials Continue to Support “Wait-and-See”

Several senior White House economic officials have also signaled support for keeping interest rates stable.

White House Trade Advisor Peter Navarro said in a recent opinion piece that the latest inflation data backs the Fed’s current decision to maintain interest rates.

Although Navarro had previously urged rate cuts, he now says that further discussion of rate hikes is unwise and keeping rates unchanged is the reasonable choice.

U.S. Treasury Secretary Scott Bessent also said this week that Warsh would maintain independence and set monetary policy according to his own judgment.

In an interview with CNBCInterview, Bessent did not explicitly support rate cuts, but stated that inflation trends after the end of the U.S.-Iran conflict should continue to be observed.

This statement was interpreted by some market participants as tacit approval by the White House for the Fed to further tighten policy.

Meanwhile, White House National Economic Council Director Kevin Hassett also believed that Warsh’s decision to keep rates unchanged at his first meeting after taking office was reasonable.

Trump Still Insists on Calling for Rate Cuts

Although the overall White House tone has softened, Trump himself has not given up on pushing for rate cuts. On Wednesday, Trump publicly stated at the White House: “We need low interest rates; low rates can solve many problems.”

However, analysts believe that with inflation still significantly above target levels, Trump is less likely to exert greater political pressure on the Federal Reserve in the short term.

Middle East Situation Remains the Greatest Uncertainty

Recently, as the Strait of Hormuz resumed navigation, international oil prices have fallen back, and U.S. gasoline prices are down about 58 cents from a month ago, offering some support for cooling future inflation.

However, significant uncertainty remains in the Middle East. On Thursday, Iranian forces attacked a cargo ship near the Strait of Hormuz, once again raising market concerns over global energy supply security.

Analysts believe that if energy prices rise again, U.S. inflation may come under renewed pressure, further testing Warsh’s ability to balance price stability with political pressures.

White House spokesperson Kush Desai said that Trump and government officials have always had full confidence in Warsh and believe that government policies to expand supply, reduce energy costs, etc., will eventually help cool inflation and create conditions for future rate cuts.