Trump’s choice of money man is about to come back to haunt him

British American journalist and contributor to the Noosphere platform for independent journalists Welcome to Power Players, The i Paper’s opinion series in which our writers and experts take an in-depth look at the key figures in American politics as the US reshapes itself and the world. • The ‘swamp creature’ eclipsing JD Vance in the race to succeed Trump• Netanyahu’s to blame for his American nightmare – and it spells his doom• The Democrat who has finally worked out how to beat Trump America’s top central banker, Kevin Warsh, is feeling the heat from Wall Street and President Trump. The all-powerful bond markets, which trade in US government debt, are now expecting the US Federal Reserve to raise interest rates, after another elevated inflation report on Friday. Trump wants the Fed to cut rates, to rev up the economy ahead of November’s midterm elections. Warsh is caught in the middle, with his credibility on the line. If the Fed doesn’t raise rates, the bond markets could respond by driving up the cost of long-term borrowing. If rates go up, the President will be extremely angry with the man he hand-picked as the new Chair of the Fed. Right now, Kevin Warsh is doubtless poring over Friday’s inflation report, which showed Americans are still paying high gas prices, as the fallout from the Iran war continues. Warsh is preparing for this week’s crucial meeting of the Federal Open Market Committee – a dull sounding name for the powerful bunch of people who decide whether or not to raise interest rates. Markets are now expecting the Fed to make borrowing more expensive, raising interest rates by a quarter of a percentage point to cool inflation. Bond markets are particularly concerned by rising government debt ($40trn dollars at the last count), the AI spending spree which is fuelled by debt and persistently high inflation. If the Fed raises rates and Warsh inevitably becomes the face of that decision at his closely watched press conference afterwards, Trump will blow his top. Bigly. Can Kevin Warsh, the raven-haired 17th chair of the US Federal Reserve who is so reassuringly square-jawed that Donald Trump approvingly described him as “central casting”, please both the President and the markets? Tricky, to put it mildly. Consider the fate of Warsh’s predecessor Jerome Powell, which would be enough to give any ordinary mortal sleepless nights. Powell was subjected to a sustained political pressure campaign which was unprecedented, even by the standards of the Trump administration. The President wanted Powell to cut interest rates, making borrowing cheaper to encourage spending, and called the Fed chair a “moron,” and “Too Late Powell” for not moving as quickly as he was demanding. In a truly stunning move this January, Trump’s Department of Justice started a criminal investigation into Powell, over his testimony to Congress relating to a multibillion-dollar renovation of the Fed’s Washington HQ. Powell would not go quietly into that good night, however. He chose the nuclear option, and recorded a Sunday night video for the ages, directly linking the threat of criminal charges to the President’s beef with him over interest rates. “The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President,” said Powell, firmly, speaking directly to camera. Ouch. This time, the President had gone too far even for Republican Senators, who complained about political interference in the running of the Fed. For Kevin Warsh to be confirmed by the Senate as Powell’s replacement, the Department of Justice had to drop the criminal investigation. Yet, Powell was not Trump’s first Fed target. Trump had also attempted to fire Federal Reserve Governor Lisa Cook over allegations of mortgage fraud – allegations she denies. Cook is in Trump’s sights because she is a Biden appointee and he wants political control of the historically independent central bank. It’s anyone’s guess how the choleric President might respond if his one-time favourite Kevin Warsh ends up presiding over an interest rate hike. Being the son-in-law of billionaire Republican donor and Trump ally Ronald Lauder, heir to the Estée Lauder cosmetics fortune, won’t protect Warsh from a torrent of negative Truth Social posts complete with AI slop. Balanced against the real and present danger of incurring the President’s wrath if interest rates go up is Warsh’s credibility problem with the markets. In July, he unsettled the all-important bond market, which trades in US government debt at longer-term interest rate levels. Warsh declared the Fed would not waver in its pursuit of 2 per cent inflation, then promptly failed to explain how he would achieve that. The result was a steep bond market sell-off, driving longer-term interest rates for Americans higher as global investors questioned Warsh’s willingness to raise the short-term interest rates it controls. The legendary Democratic political operative James Carville once declared he would like to be reincarnated as the bond market, because “you can intimidate everybody”. Kevin Warsh is on a tightrope of Donald Trump’s making. The President’s penchant for tariffs and wars – a hot one with Iran and a trade one with Canada – has pushed up inflation. The US economy is still growing, fuelled by the AI boom. Wages are in danger of being outpaced by inflation. Cutting rates could fuel inflation still further, by making it cheaper to borrow. Ignoring the big picture, Trump instead is blaming Warsh’s colleagues for not cutting interest rates. Long-time observers of the Fed fear the institution is facing a constitutional crisis. If Warsh is trying to preserve the independence of the Fed (and there’s a question mark over that), is it better to wait until after the midterm elections to raise rates, to avoid a Trump tantrum? Or will delaying a raise if markets see one as necessary to curb inflation simply provoke a crisis of a different kind? Either way, Kevin Warsh is in the hot seat.