Warsh and Bessent are now facing the same problems
Summary
- Donald Trump's administration faces increased responsibility for the economy, with Kevin Warsh leading the Federal Reserve and Scott Bessent as Treasury Secretary amid rising inflation and interest rates.
- Inflation has increased from 2.3% to 3.5% since March 2025, pushing mortgage rates above 6.5%, the highest in nine months, while internal Fed divisions challenge Warsh's leadership.
- Bessent's efforts to manage 10-year bond rates have been hindered by the Iran conflict and rising defense spending, limiting his policy options and contributing to a growing budget deficit.
- The upcoming US midterm elections highlight voter concerns over economic management, with the administration unable to deflect blame for economic challenges, marking it as "Trump's economy."
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Automatic translation: Originally published in Finnish 27/05/2026, 16:43 GMT. Give feedback here.
Donald Trump's second term has entered a new phase, where the responsibility for the economy rests even more on the administration's own shoulders. Trump's nominee has ascended to the leadership of the Federal Reserve, making it increasingly difficult to find a scapegoat for monetary policy. Economic policy, in turn, faces the same problems as the central bank.
The new Federal Reserve Chair Kevin Warsh and Treasury Secretary Scott Bessent are grappling with accelerating inflation and rising interest rates. Since March 2025, inflation has jumped from 2.3% to 3.5%, and mortgage rates have risen to over 6.5%, marking the highest level in nine months.
US: 30-year mortgage rate, %
Source: LSEG
US: 30-year bond rate and Federal Reserve's long-term interest rate estimate, %
Source: LSEG
Kevin Warsh faces a historic challenge, stemming not only from the economic environment but also from internal discord within the Fed. The April interest rate meeting showed the highest level of dissent in over 30 years. Many of Warsh's colleagues consider raising interest rates necessary to tame inflation, which runs counter to Trump's goals for looser monetary policy. At the same time, the conflict in Iran has driven up gasoline and energy prices, which is further fueling inflationary pressures.
Treasury Secretary Scott Bessent, who has been dubbed the market "pacifier," has set 10-year bond rates as a key metric of his success. The results, however, have been meager: 10-year rates have risen by more than half a percentage point due to the war in Iran, and 30-year rates reached their highest level since 2007. Although Bessent has pointed to a broad "toolkit," such as bond buybacks or shifting the focus to short-term debt (the so-called "Bessent put"), these measures may not be enough to reverse the trend.
The situation is further complicated by the widening US budget deficit, driven by increased defense spending and declining tariff revenues, which partly limits Bessent's room for maneuver. With the US midterm elections approaching later this year, voter confidence in economic management is wavering, as reflected in, among other things, consumer confidence. This has put the administration in a situation where there are no longer any external scapegoats. It is now fully a "Trump economy," and it remains to be seen whether the administration will succeed in turning things around before the midterm elections.
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