The Federal Reserve’s interest rate cut is moving further out of reach.
As Waller succeeds Powell as Chair of the Federal Reserve, Trump appears to be shifting his stance toward the Fed Chair.
Trump’s unexpected remarks on Wednesday regarding the latest inflation data could give Waller some room to maneuver on interest rates.
Trump’s stance shifts dramatically: “I like inflation.”
“I like inflation,” he said in the Oval Office.
Just hours earlier, data from the U.S. Bureau of Labor Statistics showed that the U.S. Consumer Price Index (CPI) rose 4.2% year-over-year in May, up from April’s 3.8%, primarily driven by higher energy costs following the U.S.-Iran conflict.
If the president remains unfazed by the highest inflation rate in three years, it could buy Waller some breathing room, sparing him from having to rush to meet expectations for a swift rate cut.
For years, Trump has sharply criticized and sought to undermine Powell, whom he viewed as stubbornly refusing to cut rates faster and deeper than the Fed was willing to do.
Now that Waller has been confirmed as Federal Reserve Chair and is set to preside over his first Fed interest rate decision meeting next week, Trump is signaling that he would not oppose Waller if he does not cut rates immediately.
Markets widely expect the Fed to keep short-term interest rates unchanged at 3.5%–3.75%, consistent with levels since last December.
Since March, the Iran conflict has pushed up energy prices, as tankers have largely remained unable to pass through the Strait of Hormuz—the critical chokepoint connecting the oil-rich Persian Gulf to the outside world.
This has led several Federal Reserve officials, including Dallas Fed President Lorie Logan and Cleveland Fed President Beth Hammack, to recently state that they would prefer not to cut rates now and even suggested that rate hikes might be necessary this year.
Unexpected Alignment Between Warsh and Trump
According to the Consumer Price Index data released on Wednesday, inflation surged 4.2% year-over-year in May—a significant increase—but Federal Reserve officials tend to interpret the data in a way that makes the impact appear more moderate. The so-called core CPI inflation rate, which excludes energy and food, rose just 2.9%.
For much of 2025, Warsh has argued that breakthroughs in AI technology constitute sufficient grounds for the Federal Reserve to cut interest rates.
However, during his April nomination hearing, he acknowledged, “Inflationary pressures remain a widespread concern for ordinary households and corporate boardrooms alike.” Interest rate cuts are essentially off the table until inflationary risks subside.
Although rate hikes are typically expected when inflation accelerates, Warsh stated that events like a war involving Iran are different.
“What interests me most is the underlying rate of inflation—not one-off price fluctuations caused by geopolitical shifts or changes in beef prices, but the overall trend in prices across the economy,” Warsh said during the hearing.
In Federal Reserve parlance, this is referred to as 'looking through' supply shocks—allowing one-off disruptions, such as an energy shock stemming from Iran, to work their way through the system, even if they persist longer than initially anticipated.
Trump echoed this view on Wednesday. Responding to a reporter’s question, he described the latest inflation data as “fantastic.”
“Once the war ends, inflation will drop—it will plummet like a rock,” Trump said when discussing inflation.
This aligns with comments Trump has made on more than one occasion, suggesting that although the president has long urged Powell to cut rates, he is willing to let Warsh act unimpeded on interest rate policy.
Wall Street collectively shifts stance, with only Citi holding firm on rate cuts
Following the release of the latest CPI data, Wall Street has executed a rare collective reversal in its outlook for the Federal Reserve’s rate path through 2026. Among the eight major investment banks, most have adopted a 'hawkish' or 'cautious' stance, with only Citi maintaining a relatively dovish expectation for rate cuts.
Goldman Sachs and Barclays have both pushed back their projected timing for the first rate cut to 2027;
JPMorgan holds the most aggressive view, even suggesting that the Fed’s next move could be a 25-basis-point rate hike in 2027;
Morgan Stanley, Bank of America, UBS Group, and Deutsche Bank also generally no longer actively anticipate rate cuts in 2026, emphasizing that resilient labor market conditions and persistent inflation will keep rates higher for longer.
In just a few weeks, Wall Street sentiment has undergone a complete 180-degree shift. All eyes are now focused on the Federal Reserve’s monetary policy meeting on June 17.
Editor/melody