Inaugural rate meeting under Trump’s new Fed chair triggers tightening fears

(Originally published June 18 in “What in the World“) Inflation fueled by Trump’s war on Iran is likely to push borrowing costs higher.

The latest decision by the U.S. Federal Reserve’s rate-setting committee—the first under its new, Trump-appointed Chair Kevin Warsh—suggested it may raise its benchmark interest rate later this year. While the Fed left rates unchanged for now, nine of the 19 participants at the Federal Open Market Committee’s meeting projected higher rates this year, apparently defying Trump’s call for lower rates. “It’s all right. Whatever,” Trump said at the Group of Seven summit in France.

Warsh may have begun bending the Fed to Trump’s will, however. After the latest FOMC decision, Warsh announced he was creating a task force to evaluate how the Fed conducts monetary policy, including its approach to communications, economic data, inflation, jobs, and productivity. In particular, Warsh will be examining the Fed’s trading of U.S. government bonds, which it uses to control the money supply and implement its target interest rate. Warsh contends that this activity confounds economic policies from Congress and the president; economists argue it offsets the damage they can cause.

Stocks fell on the Fed’s rate statement, with the benchmark S&P500 falling 1.2%. Investors are now betting the Fed will raise its target for the federal funds rate—currently between 3.5% and 3.75%—by 0.25 percentage points as early as September.

The U.S. consumer price index rose 4.2% in May over the year before, the highest pace in three years. Most of May’s rise in consumer prices—about 60%—came from the rising cost of fuel. Energy prices in May rose 23.5%, with gasoline prices up 40.5%. Prices for food climbed 3.1% and “core” inflation—stripped of food and energy costs—rose 2.9%.

Having largely capitulated to Iran, Trump has turned his attention to winding back the U.S. energy transition and prolonging America’s dependence on the finite, greenhouse-gas-emitting fossil fuels driving inflation higher. Power company Invenergy said Wednesday that the Department of the Interior would pay it $765 million as a partial refund for four offshore wind leases off California, Maine, and New York. Trump’s government has scotched additional offshore wind leases with French oil company Total and Golden State Wind, part of its effort to halt offshore wind power projects. Invenergy said it would reinvest the proceeds in natural gas projects in Indiana, Iowa, Kansas, Missouri, and Wisconsin.