Trump prefers rate cuts, predicts oil at $55 as Iran tensions ease

President Donald Trump said pausing rates is better than hiking and expressed confidence that inflation will ease by year-end, in remarks that signal a potential easing of pressure on Fed Chair Kevin Warsh after months of public tension over monetary policy.

"I hope to see rates come down," Trump told reporters Wednesday. "I have a lot of respect for Kevin Warsh. He has a council that could be hostile — maybe there are people in there who don't want to do the right thing."

The comments come a day after data showed the Consumer Price Index rose 3.5% in June from a year earlier, slowing from 4.2% in May and below the 3.6% consensus estimate. Core CPI, which excludes food and energy, eased to 2.6% from 2.9%. The Producer Price Index unexpectedly fell 0.3% in June, the biggest monthly drop in nearly four years, driven by a 1.4% decline in goods prices.

The Fed's benchmark rate stands at 3.50% to 3.75% after six quarter-point cuts since September 2024, with the last reduction in December. Overnight index swaps now price just a 12% probability of a hike at the July 28-29 meeting, down from 42% before the CPI release, according to CME FedWatch data.

Warsh Faces First Test of Independence

Warsh, who succeeded Jerome Powell in late May, has already drawn a sharp line on central bank independence. In his first congressional testimony Tuesday, he told the House Financial Services Committee that "the independence of the Fed is sacrosanct" and that he would "continue to do my job" if challenged by the president. The Supreme Court recently reaffirmed the Fed's independence in setting monetary policy, Warsh noted.

The new chair's voting record has historically been hawkish, and he has shown no signs of imminent rate cuts. At his first press conference following the June 16-17 meeting, Warsh said only a single policy proposal was on the table — with no discussion of lowering rates. He has also declined to submit interest rate projections, arguing against forward guidance.

Fed Governor Christopher Waller reinforced that stance last week, saying the central bank "will not keep rates down just to help the government finance its deficits" and that monetary policy "must remain independent, focused on our economic objectives."

Oil and the Iran Wild Card

Trump's $55-a-barrel oil forecast hinges on a diplomatic resolution with Iran, which he said is "very eager" to reach a deal. "When the Iran situation stabilizes, oil will drop to $55," Trump said.

That outcome is far from certain. Iran's closure of the Strait of Hormuz to commercial vessels disrupted roughly a fifth of the world's crude oil supply, sending energy prices surging. While crude has retreated in recent weeks, renewed clashes between the U.S. and Iran have reintroduced upside risk. National Economic Council Director Kevin Hassett acknowledged the uncertainty Wednesday, telling CNBC that the White House expects Warsh to "drive the committee to the right answer" on rates.

The last time the Fed faced a comparable oil supply shock — during the 2022 Russia-Ukraine conflict — the central bank raised rates by 75 basis points at four consecutive meetings. The current backdrop is different: inflation is decelerating, and the labor market, while still healthy, has shown signs of cooling.

For investors, the tension between Trump's dovish rhetoric and Warsh's hawkish instincts creates a volatile policy backdrop. If inflation continues to moderate and oil prices fall as Trump predicts, the case for rate cuts could strengthen by the fourth quarter. But if the Iran conflict escalates further, the Fed may face renewed pressure to tighten — putting Warsh's independence squarely in the crosshairs.

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