• Treasury Secretary Bessent and President Trump express strong support for Fed Chair Warsh despite September rate hike.
  • Fed holds rates at 3.75%-4.00% on October 28, with two dissents favoring another increase.
  • Warsh cites resilient growth and persistent inflation as reasons for caution; markets eye December for next move.

Confidence Amid Tightening

Treasury Secretary Scott Bessent reaffirmed his confidence in Federal Reserve Chair Kevin Warsh, stating that both he and President Donald Trump have “a lot of confidence” in the central bank leader. The endorsement, which echoes Bessent’s September comments, comes after the Fed raised interest rates in September and held them steady on October 28, despite President Trump’s public preference for lower borrowing costs. Bessent declined to say whether he personally agreed with the rate increase, but his support for Warsh remains unwavering.

A Divided Fed

The Federal Open Market Committee voted 10–2 to keep the federal funds target range at 3.75%–4.00% on Wednesday. Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented, preferring another quarter-percentage-point increase. The decision followed a unanimous rate hike in September, the first in three years, which marked a renewed tightening cycle. Warsh, speaking at a press conference, explained that economic activity remains strong but inflation is too high, and that financial conditions have tightened for some households and businesses since September, warranting a pause to assess the effects.

Inflation vs. Growth

The central bank is walking a tightrope between resilient growth and persistent inflation. Warsh noted that first-half GDP growth was revised up to 2.4%, with third-quarter activity appearing even stronger, buoyed by robust investment, particularly in technology. Meanwhile, September consumer-price inflation reached 3.7% year over year, driven partly by energy costs. The next key data point is September’s personal consumption expenditures price index, due Thursday, which is the Fed’s preferred inflation gauge. Investors widely expected the hold, but the more consequential question is whether it signals a pause before another increase. Reuters (TRI) reported that markets expect further tightening beginning in December and continuing into 2027, though those are forecasts, not commitments from the Fed.

Political and Economic Undercurrents

Bessent’s endorsement preserves public support for Warsh even as monetary policy conflicts with Trump’s preference for lower rates. The timing of the hold—less than a week before midterm elections—has invited scrutiny. JPMorgan (JPM) chief U.S. economist Michael Feroli argued that pausing despite firmer expected inflation data required a clear explanation to avoid perceptions of political influence. Warsh said politics and elections had not figured in the committee’s discussions. Internationally, Warsh warned that higher energy prices, linked to the Iran war, must not spread into broader inflation or destabilize inflation expectations. The Fed also announced a structural change: starting in 2027, it will dedicate one of its eight annual meetings exclusively to strategy, leaving seven for policy-setting.

For households and businesses, the hold offers no immediate relief from elevated borrowing costs. Warsh acknowledged that credit conditions have tightened for some borrowers since September—part of the mechanism intended to restrain inflation. The policy challenge remains reducing inflation without unnecessarily weakening a strong labor market. As Warsh put it, restoring price stability is the Fed’s responsibility, and incoming data will determine the path forward. The key takeaway for markets: political backing for Warsh can coexist with restrictive policy, and Bessent’s reassurance should not be read as a signal that rate cuts are imminent.