La Fed debería desafiar a Trump con una subida de tipos, según los economistas

The majority of participants in a FT and Booth School survey state that the central bank should raise financing costs to curb inflation. The Federal Reserve should confront Donald Trump and raise interest rates for the first time in over three years, according to prominent economists. These economists support the stance of Kevin Warsh, president of the institution, that the central bank must focus on controlling inflation.

Wall Street expects authorities of the Federal Reserve to ignore Trump's demands to keep financing costs low and increase rates by a quarter point at the end of their two-day meeting this Wednesday. Economists surveyed by the Booth School of Business at the University of Chicago in collaboration with FT agreed with market expectations: 50 out of 51 surveyed participants stated that financing costs should rise from the current 3.5% range to 3.75%.

While most economists back a quarter-point increase, 14% advocate for a larger increase, a half point, in the face of fears that fuel price surges sparked by Trump's conflict with Tehran could lead to a more generalized inflationary crisis. The Federal Reserve is lagging behind the yield curve when it comes to raising rates. Inflation has been far above target for years, warns Olivier Coibion, a professor at the University of Texas in Austin.

Inflation is not trending back to target; rather, it moves in the wrong direction, so monetary policy should react decisively, he sentences. Officials setting rates in the US cut financing costs three times last year as inflation moderated after reaching decades-high levels due to the pandemic. However, the conflict with Iran, Trump tariffs, and the AI boom have slowed progress since then.

The broad price index—FED's preferred indicator—stands at 3.7%, nearly double the central bank's 2% target. Supply chain costs are increasing at an even more accelerated pace. Nearly 90% of surveyed participants do not expect the Federal Reserve to reach its 2% target before 2028, despite higher expected interest rates. The bigger price pressures have not dissuaded Trump from demanding aggressive cuts in interest rates; the president has branded current borrowing costs as "ridiculous".

Despite the unlikely possibility of Trump celebrating an interest rate hike, Kevin Hassett, director of the National Economic Council, has stated that the White House respects the independence of the Federal Reserve president. Warsh, appointed by Trump early this year to lead the Fed, paved the way for a possible increase during a speech in Jackson Hole at the end of August, signaling that the central bank would have work to do unless inflation showed rapid signs of slowing down to levels consistent with its target.

The Federal Reserve has a double mandate: keep unemployment and inflation low. It shines— or at least is notably high— in unemployment low, but is unclear in inflation. It is clear where to dig deep, says Alan Blinder, former FED official and current Princeton professor. Operators now discount a 95% probability of a quarter-point increase in US financing costs, a measure that would represent the first rise in US interest rates since July 2023.

However, Sebnem Kalemli-Ozcan of Brown University considers the Wednesday decision as a technical tie (50-50). Warsh might still argue that we should wait and see how data evolves given the large uncertainty. There is also a possibility of no rate hike, he explains. Despite concerns about inflation, economists were more skeptical than markets about the Federal Reserve raising rates again in 2026; a narrow majority predicted a single hike—or none at all.

The Jackson Hole speech came after Warsh generated unease on Wall Street following the US central bank's July decision, when the Federal Reserve president did not detail how he thought inflation should be brought back under control. Show your value. Prove you're willing to do what it takes. If you try to avoid another rate hike, markets will turn against you, J�n Steinsson of UC Berkeley warns.