Stock Market Insights: Fed rate hike signals independence under Chairman Kevin Warsh
Dr. Richard Baker, AIF®, is the CEO and executive wealth advisor at Fervent Wealth Management.
My college-age son wanted to list his car for sale online last weekend. His taillight had not worked for a while, and we couldn’t figure out how to repair it. He decided to take his car to a local shop to get it repaired because he felt it was important to say in the ad that “everything works as it should.” The Federal Reserve (Fed) showed us last week that they weren’t being influenced by politics, and that “everything is working as it should.”
The Federal Reserve raised rates by a quarter percentage point last week for the first time since 2023. The widely expected decision was approved unanimously by the Federal Reserve’s (Fed) governors, yet that wasn’t the most important part of the story for me. The real story is that Kevin Warsh, the new Federal Reserve chairman, is no puppet of the administration.
One question many people had going into last week’s interest rate decision was the Fed's independence, particularly whether Chairman Warsh would only do what President Trump told him to do.
President Trump was frequently vocal that he thought former Chairman Powell was keeping rates too high. It was no secret that Trump had Warsh brought in specifically to lower interest rates. Last week proved to be a pure test of the Fed’s independence because recent data showed a strong labor market and inflation remained above the Fed's 2% target. This necessitated a rate increase even if the president didn’t want one. The Fed proved itself again as unbiased and doing what was best for America, as it was designed to do.
Many people expected a negative reaction from President Trump over this decision. A White House spokesman called the decision “unfortunate,” and the president posted on social media that “rates should be lower.” Yet, he did not criticize the Fed, the new chairman, or the rate hike.
Investors who worried that a chairman picked by Trump might only go along with the president's desire for lower interest rates were relieved. When push came to shove, the new chairman and the Fed still navigated to raise rates when it was needed.
In the week following the Fed decision, the S&P500 was up over 2.5%, and the Dow was up just under 1%. The best part is that they did so because of normal market conditions, without the added stress of the Federal Reserve system not being independent. There is already so much going on in the market that we don’t need the added stress of being concerned about a politicized financial system. Chairman Warsh put this to bed in his press conference when asked about when he last spoke to the president. He said, “I don’t have anything for you on discussions with the president. Part of the independence of the Federal Reserve is we stay in our lane.” Investors and all Americans collectively said, “Amen.”
I am unashamedly a proud American. The more I travel to third-world countries being run by dictators, the more I appreciate the independent branches and financial systems of our great country. Is our government perfect? Far from it. Do parts of our government frustrate me? More than you know. Still, I am at peace knowing this imperfect government is the best in the world. The way the Fed conducted itself last week reminded me of that. It is best to let the markets do their thing and let financial guardrails do their job.
An older lady came to look at my son's SUV on Sunday because she needed a new “grocery getter.” She asked if anything was wrong with it, and my son smiled, looked at me, and said, “Ma'am, everything works as it should.” I think Chairman Walsh just said the same thing.
Have a blessed week.
This article was written by humans for humans because AI doesn’t have this quality of sarcasm.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
Opinions voiced above are for general information only and not intended as specific advice or recommendations for any person. All performance cited is historical and is no guarantee of future results. All indices are unmanaged and may not be invested directly.
The economic forecast outlined in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.
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