(Sept 9): With a week until a key Federal Reserve (Fed) meeting, US President Donald Trump has lobbed his first threat at Kevin Warsh, the new chair he put on the job. “The Fed board, with its great new leader, must get smart — be patriots for a change,” he posted last Friday, urging policymakers to cut interest rates even as the market sees better-than-even odds of a hike to counter inflation. Trump added: “High interest rates put the US at a very unfair disadvantage, and I won’t allow that to happen!”

The Warsh-Trump honeymoon is officially over. Investors shrugged off Trump’s latest tirade, perhaps betting that the legal system will protect the Fed’s operational independence; that distributed power on the rate-setting committee will help it resist coercion; and that Democratic Party gains in the November midterms could hem in the president. Even if all that is true, Trump’s misguided comments sully the Fed’s reputation, and perceptions matter for inflation, a psychological phenomenon in which consumer expectations and reality feed upon one another. 

Observers should worry about the pernicious deterioration of the Fed’s approval scores in the court of public opinion. Part of that is about too-high inflation, but the Fed is less popular today than after the financial crisis or the peak of inflation in 2022. In the latest Gallup survey from September 2025, just 33% of US adults thought the Fed board was doing an “excellent” or “good” job, while 27% said policymakers were doing a “poor” job — a net positive rating of just 6%, the lowest in surveys conducted intermittently since at least 2003.

Americans must not shrug off the damage that the president’s persistent attacks on the Fed, beginning under Warsh’s predecessor Jerome Powell, are doing to one of the country’s most important institutions. Inflation is eating away at Americans’ hard-earned wage gains, and people consistently put affordability among their top concerns. A well-respected, independent Fed is their best hope for better outcomes ahead.

The scenarios heading into the next Fed meeting illustrate how big a bind Trump has created for policymakers.

A close reading of Trump’s recent Truth Social posts suggests he may still think of Warsh, the Fed’s “great new leader,” as being on his side — a MAGA warrior saddled with the challenging task of shepherding the Fed’s wayward institutionalists. Short of some miracle disinflation in the next consumer price index report due Friday, that interpretation cracks the door open to policymakers raising rates without Warsh. Could it happen?

Three of 12 voters dissented from the last decision to hold, preferring to raise rates (Federal Reserve Bank of Cleveland president Beth Hammack, Federal Reserve Bank of Minneapolis president Neel Kashkari and Federal Reserve Bank of Dallas president Lorie Logan). Others, including governors Lisa Cook, Michael Barr and Christopher Waller, have since said they are open to potentially tightening policy depending on developments in the data. 

As Bianco Research’s Jim Bianco has noted, former chair Powell has been radio silent since leaving the top post. Powell bucked convention by staying on the Fed board after his chairmanship to guard against ongoing threats to the Fed’s independence. It isn’t crazy to think he might seize an opportunity to make a difference by joining a hawkish bloc in voting to lift rates.

A Fed rebellion against the chair would not be pretty. The Federal Open Market Committee has never voted against the chair in a rate decision in the modern era, and it hasn’t done so on any other substantive policy question since the chairmanship of Marriner Eccles in 1939. Doing so would trigger a crisis of leadership. The markets and public would perceive an unpredictable tug-of-war for control of the institution, and rates markets and bond yields would become more volatile. 

Then there’s the status quo: The Fed holds rates at 3.5%-3.75%, probably with dissents. In this scenario, the public will assume politics are driving policy ahead of the Nov 3 midterm elections, and Trump’s Truth Social post will be Exhibit A.

Isn’t it best to avoid poking the bear (ahem, the president) during this politically important season? 

No. As Bloomberg Opinion's Claudia Sahm wrote on Monday, “appeasement is not a strategy that works with the Trump administration”, a reminder of how Barr resigned as the vice-chair for supervision to placate the new administration in early 2025, and how the administration went after the institution anyway, escalating at every turn.

Markets have repeatedly punished policymakers when investors thought they were going too easy on inflation. Yields on 10-year Treasury notes, which influence borrowing costs throughout the economy, surged by about 1.15 percentage point from the time the Fed started cutting rates in late 2024 to January 2025. Yields also surged in 2023 when the Fed stopped hiking even as some investors speculated that they should have gone further.

Inflation measured by the personal consumption expenditures (PCE) deflator is running at 3.7%, nearly twice the Fed’s 2% target, which it has now exceeded for five and a half years. Although inflation peaked in 2022, progress has effectively stalled since late 2024, and even an encouraging inflation report on Friday wouldn’t alter the interpretation. The lingering problem is widespread, with well over half of PCE components still increasing at more than a 3% pace in the past year.

A few common excuses are made for the elevated headline inflation figure: It’s just an energy shock (from the US-Israel war with Iran) or it’s just the surging prices of computer equipment (from the artificial intelligence build-out). But the Trump administration has overseen one shock after the next — shocks are the new normal — and the Fed’s challenge is to keep the public’s faith in stable prices through it all. 

Ignore that, and policymakers may find that the price of staying in good standing with the White House is falling out of favour with the bond market.

At the time of writing, swaps and futures markets imply roughly 60% odds that the Fed will lift rates to 3.75%-4% in its Sept 16 decision. Even without knowing the outcome of Friday’s inflation report, this is almost certainly what should happen. 

“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed,” Warsh said in his excellent, and resoundingly hawkish, address in Jackson Hole last month. “Otherwise, we have work to do,” he added. 

Following through will take backbone. The White House response is likely to include social media insults, redoubled efforts to try to weaponise the legal system against the central bank, and even new economic interventions. In his post last Friday, Trump made an alarming threat to cut off trade with countries with which the US has a trade deficit if the Fed didn’t cut rates, which amounts to a puzzling conflation of two completely unrelated issues. Absurd as that would be, one shouldn't doubt Trump’s capacity to execute on the preposterous. With two more years of Trump’s attacks, the Fed’s approval numbers may get worse before they get better.

But Fed policymakers should “be patriots” and protect their integrity in the face of a public defamation campaign. And the best of their bad options for doing so is to tune out the noise and do what’s right: Lift rates next week, with Warsh leading the charge.

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