Warsh-led Fed faces a rate dilemma Trump himself helped create

The Federal Reserve's upcoming September rate decision puts Chair Kevin Warsh in the middle of a contradiction largely created by the White House itself.

Faced with unfavorable approval ratings based in large part on his economic record, President Donald Trump is demanding the lowest interest rates in the world at the same time his administration's tariff policy and the fallout from the Iran war are pushing inflation in the opposite direction.

Speaking to reporters at the Irish Open golf tournament over the weekend, Trump said the United States "should be paying the lowest interest rate in the world," reported Reuters, adding that this should hold true no matter what Fed data show about inflation.

That comment came just two days after the Labor Department's Consumer Price Index posted its largest monthly increase in four months – a reading that can be tied directly to the price pressures Trump's own trade policy has helped generate.

Read more: Core inflation comes in hotter than expected. Fed rate hike looks inevitable

As noted by Reuters and other outlets, price pressures in the US remain elevated as the economy deals with the president's import tax increases and surging energy prices connected to the Iran war, the same forces many Fed officials worry could keep inflation elevated the longer they persist.

Two weeks before his comments in Ireland, Trump issued a more aggressive demand on social media: "LOWER THE RATE OR I'LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT," he said in a post apparently aimed at the US central bank.

He reiterated his America-first positioning over the weekend, telling reporters that "We don't want to have deficits with nations. We want to have surpluses or at least break-evens."

Trump also dismissed the Fed's data-driven approach outright, telling reporters, "I know more about formulas than anybody, and with the best credit in the world, we make other countries rich."

Warsh was nominated on the expectation he would be friendlier to rate cuts than his predecessor Jerome Powell. But at the Fed's Jackson Hole symposium last month, he said the central bank still has "work to do" on inflation, a remark that shifted market pricing toward a hike rather than a cut.

Read more: No Fed relief at Jackson Hole: Warsh keeps rate-hike door open

Market expectations have shifted slightly toward a hike over the past week. After releasing preliminary data suggesting weaker-than-hoped jobs growth for the year ending in March, the Bureau of Labor Statistics on Friday revealed a hotter-than-expected core CPI reading for August, with the benchmark rising 0.3% after a 0.2% increase in July.

Counting its sessions under Powell, the Fed has already held its policy rate steady at 3.5% to 3.75% at multiple meetings this year, despite earlier rounds of White House pressure.

“Apart from the hot core inflation, today’s print doesn’t even cover the most recent oil price spike above $100,” Nic Puckrin, macro analyst and founder of Coin Bureau said in reaction to last week's CPI data release. “There’s little reason for the Fed to hold off on the hike next week – in fact, if it does, it may lose any credibility that Warsh has been painstakingly building since taking office.”