Trump gives blasé response to rate hike possibility

President Trump has spent much of his term bashing outgoing Federal Reserve chair Jerome Powell for not cutting interest rates enough. On Tuesday, he seemed surprisingly blasé about the possibility that incoming chair Kevin Warsh might end up raising them.

Driving the news: A reporter on Tuesday noted that markets now think an interest rate hike this year is more likely than a cut and asked the president whether he thinks Warsh will deliver the lower rates that Trump has long demanded.

• "I'm going to let him do what he wants to do," Trump said. "He's a very talented guy, he's going to be fine, he's going to do a good job."

Between the lines: That's not how defenders of Fed independence would prefer a president phrase things. Once a Fed chair has been installed, they don't need presidential approval for rate decisions; rather, they're supposed to carry out policy that will best achieve the central bank's statutory mandate.

• But Trump is seemingly giving Warsh some room to maneuver, implying that he may not immediately get the Powell treatment even if Warsh delivers a hawkish monetary policy message in his early months in office.

Of note: Last week, Treasury Secretary Scott Bessent said he thinks there will be one or two more "hot inflation numbers, but then I think we're going to see substantial disinflation."

• The early question for Warsh and the policy committee he inherits will be whether to look through the inflation surge being largely driven by energy disruptions tied to the Iran war.
• Minutes of the late April Fed meeting are due out Wednesday at 2pm ET and will shed further light on a meeting in which four officials dissented, three of whom wanted to remove language implying the next policy move will be toward lower rates.

By the numbers: The CME FedWatch tool, based on futures prices, now puts minuscule odds on rate cuts this year, with 39% odds that the Fed policy rate ends 2026 where it is now and 60% odds on at least one rate hike.