Trump administration eases pressure on Fed as inflation rises above 4%

Inflation for the year ending in May rose to 4.1%, driven largely by higher energy costs linked to the conflict in the Middle East, while core inflation, which excludes food and energy, stood at 3.4%, according to the Bureau of Economic Analysis. The Federal Reserve, under its newly appointed chair Kevin Warsh, kept interest rates unchanged and ended a policy that had previously favored cuts. Nearly half of the Fed’s policymakers now project a rate increase later this year, and market pricing reflects a 79% probability of a hike by December.

President Donald Trump reiterated his preference for lower rates, saying they would “solve everything,” but several senior advisers have softened their public stance. A senior White House official, speaking anonymously, said the shift reflects the president’s confidence in Warsh rather than a change in economic data, adding that personnel matters are “big for this president.” Treasury Secretary Scott Bessent said Warsh would act independently, while White House National Economic Council director Kevin Hassett suggested a pause in rate adjustments to “get your feet on the ground.”

Trade adviser Peter Navarro, who previously advocated cuts, wrote that the latest inflation figures support a “hold-steady case” for the Fed, describing a move toward rate hikes as “foolish.” The White House spokesperson Kush Desai emphasized that the administration believes Warsh’s independence and supply-side policies will eventually cool inflation, paving the way for future cuts.

Energy prices have fallen after a deal to reopen the Strait of Hormuz, with U.S. gasoline averaging $3.90 per gallon, down 58 cents from a month earlier, but ongoing instability in the region leaves the durability of the decline uncertain. Analysts note that the Fed’s next meeting in late July will be critical as it assesses whether the recent easing of energy costs will translate into sustained inflation moderation.