① Federal Reserve Chair Kevin Warsh faces a challenge just two weeks into his tenure, as a strong nonfarm payrolls report fuels expectations of rate hikes, triggering a sell-off in U.S. equities and sending the Nasdaq plunging by more than 4%. ② Trump and his chief economic adviser argue that the jobs report indicates room for the Fed to cut rates, but Fed officials and major Wall Street banks forecast rate hikes within the year.
Caixin Global, June 7 (Editor Niu Zhanlin) — Nick Timiraos, a prominent journalist often dubbed the 'new Fed wire service,' wrote on Friday that Kevin Warsh has only been Federal Reserve Chair for two weeks, yet Treasury markets and the White House have already set the stage for his first major test in office.
Friday’s robust nonfarm payrolls report prompted traders to increase bets on rate hikes this year, with one voting Fed official publicly warning that a rate hike may be necessary this summer. Meanwhile, a major Wall Street bank predicts the Fed will initiate a series of consecutive rate hikes starting in December.
On the other side, Trump reiterated his long-standing grievance: investors view strong economic data as bearish because they expect the Fed to respond with rate hikes. On Friday, Trump posted on social media: "Just released a very strong jobs report—the stock market should be rising, not falling. Strong economic growth does not mean inflation!"
That day, U.S. stocks faced a sell-off, with the Nasdaq plunging by more than 4%. Timiraos noted that in the current environment, positive economic data pushes up U.S. Treasury yields, and rising yields weigh on equity prices.
Trump’s chief economic adviser argued on a television program Friday that the jobs report actually suggests the Fed could still cut rates in the future.
Timiraos commented that these sharply shifting market expectations highlight the significant challenges Warsh faces ahead of his first Federal Open Market Committee (FOMC) meeting this month. When Trump nominated him in January, he appeared poised to inherit a markedly different economic landscape.
At that time, markets widely anticipated as many as three rate cuts from the Fed this year. Officials were uncertain whether the labor market could stabilize without further policy support. With labor demand cooling and inflation seemingly returning toward the Fed’s target, interest rates then appeared restrictive.
Yet just four months later, that picture has almost entirely reversed. Employment growth has not slowed—it has re-accelerated. A boom in AI infrastructure investment is intensifying shortages of raw materials and electricity, and these price pressures stem not from economic weakness but from robust economic activity.
This does not even account for the aftermath of Trump’s February decision to take military action against Iran. The prolonged blockade of the Strait of Hormuz to most commercial shipping has driven up gasoline and other commodity prices; since the beginning of the year, U.S. retail gasoline prices have risen by nearly 50%.
For a long time, the Federal Reserve has been divided over two key risks: whether it should be more concerned about a weakening labor market or a resurgence of inflation.
According to Timiraos, this debate is now gradually tilting toward the 'hawkish' side that worries more about inflation—officials who were already skeptical about the rate cuts implemented at the end of last year.
White House Pressure
Cleveland Fed President Beth Hammack is one such official; she cast a dissenting vote at the April FOMC meeting. At the time, she and two other officials argued that the Fed should remove language from its official statement suggesting that rate cuts remained more likely than hikes. Markets widely expect the Fed to hold rates steady at its June 16–17 meeting and eliminate that language.
In a statement released Friday, Hammack said maintaining current rates is appropriate for now. "But if recent trends persist, action may be needed soon," a remark suggesting she is prepared to advocate for a rate hike at the next policy meeting in late July.
Lorie Logan, President of the Dallas Fed and another voting member of the FOMC, stated earlier this week that she would support raising interest rates later this year if current conditions continue.
Wall Street is also beginning to shift in a similar direction. On Friday, BNP Paribas became the first major bank to incorporate rate hikes into its annual forecast, telling clients it expects the Fed to begin a series of increases starting in December.
Timiraos noted that if market discussions about rate hikes persist through the summer, mortgage rates and other borrowing costs could rise further—just as Republicans prepare for the November midterm elections and seek to defend their record on controlling the cost of living.
In recent weeks, Trump administration officials have sought to allay inflation concerns, arguing that rising energy costs will quickly subside once hostilities in the Middle East cease.
Kevin Hassett, Director of the White House National Economic Council, said Friday that current job growth does not reflect the kind of overheating that typically warrants rate hikes. On the contrary, he stated, the Fed "will have room to cut rates as it continues to assess incoming data."
Notably, Trump also said on Friday that he would like to see interest rates lowered, but he would leave the decision on interest rates to Federal Reserve Chair Worshe.
Editor/Rocky