White House pushes Warsh for rate cuts after inflation falls to 3.5%

The White House is pressing Federal Reserve Chair Kevin Warsh to lower borrowing costs after June inflation fell to 3.5 percent, the biggest monthly decline in more than six years.

"There's not really an excuse for raising rates right now," Kevin Hassett, director of the National Economic Council, said on CNBC's "Squawk Box" on Wednesday. He added that Warsh "is going to drive the committee to the right answer."

The consumer price index dropped a seasonally adjusted 0.4 percent in June from May, the Bureau of Labor Statistics reported Tuesday, beating the Dow Jones consensus estimate. The annual rate of 3.5 percent compares with 4.2 percent in May, which was the highest since April 2023. The federal funds rate currently stands at 3.50 percent to 3.75 percent, where it has been held since the Federal Open Market Committee's June meeting.

Warsh, who succeeded Jerome Powell in late May, has yet to signal his policy direction. In testimony before the House Financial Services Committee on Tuesday, he pushed back against declaring victory. "There might be some that look at this morning's data and say, 'Oh, mission accomplished, everything is swell.' That is not my view," Warsh said. The FOMC's next meeting on July 29 will be his first rate decision as chair.

Hassett's comments align with President Donald Trump's repeated demands for lower rates to stimulate the economy. The NEC director credited Trump's policies for the inflation decline, including what he described as improved "law and order" in major cities reducing insurance costs. The last time the Fed faced similar White House pressure for rate cuts was during Trump's first term in 2019, when the central bank ultimately lowered rates three times between July and October of that year.

Prediction markets currently price a 59.5 percent probability of a rate hike in 2026, according to Vera data, down from 54 percent before the CPI release. If the Fed signals a willingness to cut at the July meeting, the 2-year Treasury yield could fall further, potentially weakening the dollar and supporting equity markets. A hawkish hold would likely push yields higher and strengthen the greenback.

The economy grew at a 2.1 percent annualized rate in the first quarter, a pace consistent with stable conditions but not overheating. Hassett said he expects the data trends, if sustained, will push the Fed toward lowering rates. The June CPI decline was the steepest monthly drop in more than six years, driven partly by lower energy costs as developments in the US-Iran conflict eased, though Hassett argued the improvement was broader than just oil prices.

The divergence between the White House's dovish push and Warsh's cautious tone leaves markets guessing ahead of the July 29 decision. A cut would mark the first rate reduction since the easing cycle ended in late 2024, while a hold would signal that Warsh intends to maintain independence from political pressure — a dynamic that could define his tenure.

This article is for informational purposes only and does not constitute investment advice.