The Federal Open Market Committee raised the target rate for federal funds by a quarter percentage point to 3.75-4.00% on September 16.
Federal Reserve officials expect one more interest rate increase this year and expect to hold steady in 2027, quarterly projections released after their latest policy meeting showed.
Fed rate hike revives pressure on independence
On Wednesday, U.S. Federal Reserve Chair Kevin Warsh became his predecessor, Jerome Powell. Perhaps not in his own eyes or in the eyes of investors, but, crucially, to the White House that appointed him. The central bank announced an increase in the federal funds rate, and a clear intent to lower inflation, perhaps through further hikes. That won’t please President Trump, who thinks rates should be “1%, or less”. The administration’s campaign for easy money and against Federal Reserve independence is now likely to return in earnest.
In some respects, the administration’s pressure never ended. While the Fed’s independence won a reprieve when the Supreme Court ruled that officials could not be fired without cause, it faced other threats. Treasury Secretary Scott Bessent has waged a quixotic battle to lower U.S. yields since August. Bond buybacks of $2 billion or $4 billion apiece failed to change yields on $40 trillion in U.S. debt for long.
Warsh, channeling Powell, delivered two clear warnings to Bessent and other administration meddlers in his press conference Wednesday. He noted that his job was to formulate monetary policy, “and we’ll let the people that do trade policy and fiscal policy stay in their lane, too.” In case the point didn’t get across, he essentially paraphrased a recent criticism from hedge fund manager Stanley Druckenmiller, a former mentor he shares with Bessent. “I want to let them tell any story they wish,” Warsh said of bond market investors, who have sold off U.S. debt amid a deluge of AI-led investment and high commodity prices. Druckenmiller recently urged Bessent to listen to the bond market rather than attempting to subdue it. Bessent pushed back, saying last week that he has “asymmetric information,” like the “house” in a casino. “You can bet against me if you want.”
Investors keep betting against Bessent, and yields rose after the Fed decision was announced. Warsh will begin to attract the attention Powell did when he didn’t follow Trump’s preferred course. Paradoxically, this might bolster Fed independence. Warsh is firmly in the job, with no legal path to removing him. Trump has no open spots on the Fed to fill, and won’t anytime soon. The Fed war has flared again, but the central bank retains its advantage.
TLT•
