President Donald Trump Claims Kevin Warsh Will "Do What He Has to Do" Over Interest Rates, but Keeps Throwing the Fed Under the Bus

Investors have been privy to several history-making moments this year, including record highs for the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC), and the largest-ever initial public offering in Wall Street's history.

However, the biggest milestone of all might be the swearing-in of Kevin Warsh on May 22 as just the 17th head of the central bank.

Fed Chair Kevin Warsh may be on a collision course with President Trump over interest rates. Image source: Official White House Photo by Daniel Torok.

But President Donald Trump's handpicked successor to Jerome Powell became Fed chair at one of the most challenging times throughout history. The trailing 12-month inflation rate reached a three-year high of 4.2% in May, putting Warsh on a similar collision course with Trump over interest rates that his predecessor, Powell, often found himself on.

Thus far, President Trump has given Warsh a pass on direct criticism -- but the same can't be said of the Federal Open Market Committee (FOMC).

Kevin Warsh's Jackson Hole speech hints at rate hikes

Since taking the reins from Jerome Powell, Warsh has drastically toned down the commentary we'd typically see between a Fed chair and the press. For example, he eliminated forward-looking guidance from FOMC statements to encourage markets to react to economic data and not rumors.

Fed Chair Warsh's Jackson Hole speech on Aug. 28 offered a new perspective on what he might be thinking about interest rates. He proclaimed "the Fed's predominant focus right now should be on prices," and laid out his "standard" by claiming:

We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.

The inclusion of "at sufficient speed" is the first signal investors have seen that Warsh and the FOMC may consider raising interest rates even if headline inflation is falling (just not fast enough to the Fed chair's and FOMC's liking).

When asked about the possibility of Kevin Warsh and the Fed raising rates, President Trump said, "I have a lot of respect for him, and he'll do what he has to do."

Image source: Getty Images.

Trump continues to lay into the Fed, despite his policies boosting inflation

While President Trump is approaching his commentary about Kevin Warsh differently than he did with Powell, he remains hypercritical of the FOMC and continues to claim that U.S. interest rates are too high.

Just five weeks ago, the president claimed, "Kevin's fantastic, but he's got a board, and the board members are very political."

But the reason the FOMC halted its rate-easing cycle has nothing to do with their political views. Rather, it has to do with the inflationary effects of the president's own policies. Trump's tariffs and the Iran war are providing a clear lift to consumer prices, with evidence mounting (vis-à-vis the stickiness of Core Personal Consumption Expenditures) that Iran-war-driven inflation is entrenching itself in the broader economy.

BREAKING: US July PCE inflation, the Fed's preferred inflation metric, hits 3.7%, above expectations of 3.6%.

Core PCE inflation was 3.3%, the second highest reading since October 2024.

US inflation continues to run at nearly double the Fed's 2% target.

Own assets or be left...

-- The Kobeissi Letter (@KobeissiLetter) August 26, 2026

While lower interest rates would be expected to promote job and economic growth, they can light a fire under well-above-average inflation.

If Warsh and the FOMC do undertake a rate-hiking cycle, it may mark the end of the artificial intelligence (AI)-driven rally on Wall Street. Making borrowing costlier amid the AI infrastructure build-out would effectively throw a monkey wrench into the engine of the stock market's No. 1 catalyst.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.