Trump suffers crushing defeat in midterm electionsis Warsh finally free from having to defer to the White House? The Fed's fight against inflation reaches a critical turning point.

Title context: Trump suffers crushing defeat in midterm electionsis Warsh finally free from having to defer to the White House? The Fed's fight against inflation reaches a critical turning point. Text: Tuesday's sweeping voter repudiation of Trump may lift a political burden from Fed Chair Kevin Warsh, allowing him to focus on bringing inflation down with less political interference. That is the initial reading of many Fed watchers. They say the Republicans' drubbing in the electionswith voters listing the cost of living as a top concernhas completely overturned the political dynamics surrounding the Fed. "Warsh and his team can now focus on implementing monetary policy," said Mark Spindel, an investment manager at Potomac River Capital who co-authored a history of Fed independence. "Warsh wants to leave a good historical legacy, but they have to deliver." Since Trump returned to power in 2024, White House pressure has hung over the Fed and its rate decisions. He repeatedly called for rate cuts, pushed for an unprecedented criminal investigation into the Fed building renovation project, and sought to remove a sitting governor. It was against this backdrop that Trump nominated Warsh in May to lead the Fed. At the time, Warsh reversed his past position and came out in support of rate cuts, sparking concerns among Democrats that the new chair might bend to the president's wishes and adjust monetary policy. Lingering concerns Warsh has already taken considerable action to try to dispel such concerns. With inflation above the Fed's target for more than five years and accelerating again this summer, Warsh raised rates in September, pushing back against those who doubted he was unwilling to face political criticism. His remarks after the Fed's October meeting further reinforced market expectations for another rate hike in December. Nevertheless, Warsh presided over a decision to hold rates steady on the eve of the midterm elections, even after a hot September inflation report had just been released. He insisted the election played no role, but that move, combined with his habitual reluctance to share economic outlooks, has bred lingering worries that he is wary of angering the president. But the crushing election defeat may change that. Daleep Singh, chief global economist at PGIM and a former senior official in the Biden administration, believes the election is good for the Fed, not only because it is a repudiation of Trump but also because it directs policymakers' attention to the problems voters want solved. "The question is whether, with Trump's grip on the country somewhat loosened and voters making clear that the cost of living was the number one issue in this election, Kevin Warsh and the Fed will read that signal and do their job?" Singh said Wednesday. "Our view is yes." Singh predicts the Fed will raise rates by a full percentage point over the next year. Stephen Myrow, managing partner at Beacon Policy Advisors and a former Treasury official in the George W. Bush administration, said the election loss will also leave Trump and the White House preoccupied, weakening their willingness to keep close tabs on the Fed. "Trump has a whole host of other thorny issues to deal with next," Myrow said. "So the Fed won't be as much of a prime target for him as before." Post-Trump considerations At the same time, Warsh may now be looking more toward the period after Trump's term. His chairmanship will run until 2030, spanning the next administration. "Warsh's term was always going to outlast Trump's, and he has his own incentive to withstand pressure," said Tim Duy, chief U.S. economist at SGH Macro Advisors. However, other analysts warned against assuming rates will embark on a sustained upward trajectory. "Looking back at the Fed's entire sequence of moves this yearpausing, hiking, pausing againthat path could very well have happened even with everything normal at the White House and no sustained pressure for rate cuts," said Claudia Sahm, chief economist at New Century Advisors. "I would be very careful about concluding that just because the White House suffered an election setback, the Fed will launch a major rate-hiking cycle." In fact, if the election results prompt Trump to end the Iran conflict and abandon new tariffs, the Fed may not even need to keep raising rates. Sahm said: "The eventual rate path could actually end up lower than expected, rather than higher."