President Donald Trump just threw Fed Chairman Kevin Warsh under the bus, and things could get ugly for Wall Street

Since the late 1890s, about three-quarters of all presidential terms have overseen stock market gains. But under President Donald Trump’s two non-consecutive terms, the proven method Dow Jones Industrial Average (^DJI -1.23%)reference S&P500 (^GSPC -0.52%)and technology-focused Nasdaq Composite (^IXIC -0.21%) have generated higher average annual returns than most other presidents over the past 130 years.

Although investors have come to appreciate Trump’s Tax Cuts and Jobs Act, which lowered the top marginal corporate tax rate from 35% to 21% and spurred record buybacks of S&P 500 stocks, not everything the president has done has benefited Wall Street.

Some of President Trump’s policies are fueling inflation (rising prices), prompting Fed Chairman Kevin Warsh and the Federal Open Market Committee (FOMC) to initiate the fourth rate-hike cycle of the 21st century.

President Trump has been in conflict with the Fed since the start of his second term. Image Source: Official White House Photo by Daniel Torok.

For more than a year, Trump has expressed his dissatisfaction with the central bank and its now former director, Jerome Powell. However, he had held back any criticism of his hand-picked candidate, Kevin Warsh…until now.

President Trump reverses the FOMC And his new Fed chair under the bus

Shortly after the start of Donald Trump’s second term, he became virulently opposed to the central bank’s monetary policy.

Under Powell, the FOMC lowered the target federal funds rate six times between September 2024 and December 2025, bringing it to 3.50%-3.75%. But that wasn’t enough to appease President Trump, who repeatedly called on the FOMC to cut interest rates to 1%.

There are likely several reasons for Trump’s continued calls for lower interest rates:

• Lower borrowing costs would boost Wall Street’s No. 1 catalyst, building artificial intelligence (AI) infrastructure.
• Cheaper access to capital would also make it easier for businesses to hire, keeping the unemployment rate historically low.
• More importantly, a drastic reduction in interest rates would significantly reduce the cost of servicing the United States’ total debt, which stands at more than $40 trillion.

President Trump called the Federal Reserve “very hostile” and “very political” after the central bank raised interest rates by a quarter of a percentage point on Wednesday. Trump said he still has confidence in Kevin Warsh as Fed chairman and is “counting on him” even though he “doesn’t have the votes.” “No matter how good the work… his board is hostile,” Trump told reporters. “They are raising rates to make Trump do as much harm as possible.”

– CBS News (@CBSNews) September 17, 2026

The president did not mince his words when discussing the other voting members of the FOMC. On September 16 (the day the Fed raised the target federal funds rate by 25 basis points), he stood with Kevin Warsh and blasted the FOMC while speaking to reporters:

I’m counting on Kevin, but he has a very durable board. He has a board that was created by many other people. And interest rates are too high; they are not appropriate… The board of directors is very hostile. They are very political. They are doing the wrong thing.

But in a recent interview with TimePresident Trump threw Kevin Warsh under the bus for the first time. Trump said:

This is a problem because we have a very hostile Fed board. I don’t blame Kevin Warsh. I probably would have voted against the board if I were him.

While Trump framed his response as support for his nominee for Fed chairman, the full scope of his response indicates displeasure with Warsh’s vote for rate hikes on September 16. Based on the president’s interactions with former Fed Chairman Powell, more moves against Fed Chairman Warsh are likely in the coming months — and that’s potentially terrible news for the stock market.

Image source: Getty Images.

Trumpflation expected to accelerate Fed rate hike cycle in 2027

Although the president has sharply criticized the FOMC’s monetary policy, the central bank has good reason to take action against persistently high inflation.

Although a modest level of inflation is expected when the U.S. economy is expanding, we have seen the current inflation rate exceed the FOMC’s long-term target of 2% over the past 67 months, reaching a three-year high of 4.2% in May. Responsible for this surge in consumer prices are two policies of President Trump: tariffs and the war in Iran.

Tariffs are a tool that President Trump has relied on during his two terms in office. Ideally, tariffs protect American jobs, encourage domestic production, and make American products more competitive with those imported from abroad. But according to a new report from a trio of New York Federal Reserve economists written for Liberty Street Economics, Trump’s tariffs are having a negative impact on consumer prices.

In “How Fast Tariffs Pass Through to Consumer Prices,” New York Fed economists estimate that Trump’s tariffs added 2.9 percentage points to goods price inflation by February 2026. While the tariffs directly contributed to higher prices, so did rising domestic manufacturing costs.

New from the New York Fed: “As of February 2026, tariffs contributed 2.9 percentage points to goods price inflation, and without them, goods prices would have fallen slightly. » About a quarter of each point of higher tariff rates is reflected in consumer prices in a year. • A general tariff of 10% leads to a 2.6% increase in the prices of consumer goods after one year. • About two-thirds of the increase comes from more expensive imports, which are quickly passed on. • Another third comes from products made in the United States, as producers face higher production costs and less competition from imports. It takes longer, around 6 to 12 months, to filter.

– Nick Timiraos (@NickTimiraos) October 6, 2026

Additionally, the war in Iran created the largest disruption of energy supplies in modern history. The ongoing closure of the Strait of Hormuz has cut off the flow of a fifth of the world’s liquid oil, sending gasoline and diesel prices skyrocketing.

Hypothetically, even if the war in Iran ended today, it would take more than a month to return production in the region to full capacity, and even longer to replenish storages. The effects within the energy sector and beyond would likely continue for several quarters after the war ended.

This evolution of Trumpflation, coupled with the inflationary effects of AI infrastructure development, is what prompted Kevin Warsh and his FOMC colleagues to act in September. According to the CME GroupIt is (DUDE -0.09%) There is a 64% chance that Warsh and the FOMC will raise rates by at least 75 basis points by September 2027, according to FedWatch Tool.

In other words, we could be bracing for another public feud between President Trump and a sitting Fed chairman. Not only does Trump’s public criticism of the central bank risk damaging its credibility, but further rate hikes, driven primarily by Trumpflation, could upset Wall Street’s main catalyst.

The stock market is priced to perfection. If a rapid increase in lending costs slows the construction of AI data centers, it wouldn’t take much to knock the Dow, S&P 500, and Nasdaq Composite off their respective pedestals.

If the past is any indication of what’s to come, things could go badly for Wall Street.