Trump backtracks, saying "Let Wash decide interest rates," as U.S. Treasury yields soar, pressuring the new Federal Reserve Chair

ME News message, May 20 (UTC+8). Spurred by rising energy prices driven by the US–Iran war, US Treasury sell-offs, and concerns about fiscal deficits, the yield on the US 30-year Treasury has risen to its highest level since 2007. Market worries about inflation and high interest rates continue to intensify. Kevin Wahsh, who is scheduled to be sworn in as the next Federal Reserve Chair this week, is facing multiple pressures: on one hand, the White House has repeatedly urged rate cuts; on the other hand, most Fed officials favor keeping interest rates high.

In a recent interview, Trump said he would “let Wahsh do what he wants,” calling him “very talented.” But just last month, Trump had also publicly said that he would be disappointed if Wahsh did not cut rates immediately after taking office. Analysts believe this indicates the White House has begun making a contingency plan in advance for June if rates are not cut.

Economist Derek Tang said Trump seems to have realized that the Fed’s interest rate decisions are jointly determined by the Federal Open Market Committee (FOMC), rather than being decided solely by the Chair. “This gives Wahsh some buffer room in the early stage of taking charge of the Fed.”

At present, support within the Fed for short-term rate cuts has clearly been declining. With energy prices rising, US inflation pressure is heating up again, and the labor market remains stable, market expectations for rate cuts later this year continue to cool.

Former Fed economist Julia Coronado said, “At the moment, there is hardly any evidence of deflation, and the war could further worsen fiscal conditions. The path toward rate cuts may need to go through a recession first.”

JPMorgan’s chief US economist Michael Feroli also noted that, in the current environment, it will become more difficult for Wahsh to persuade the committee to support rate cuts within the year. In addition, the incoming market expects outgoing Powell to remain on the Federal Reserve Board, which is also seen as limiting the space for Wahsh to quickly reshape the policy direction. (Source: BlockBeats)