Warsh raised rates, Trump called him first, and now Xi is coming to Washington

Two seismic events landed on Washington in the span of four days, and they may not be unrelated. On Wednesday, September 16, the Federal Reserve raised interest rates for the first time in more than three years. Hours later, President Trump went on Truth Social and demanded rates of 1 percent "or less." Then, at a press gaggle, he said something that no president is supposed to say: he told reporters he had spoken with Fed Chairman Kevin Warsh before the vote and told him to go along with it.

On Sunday morning, Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer sat down at JP Morgan Chase's Manhattan headquarters with Chinese Vice Premier He Lifeng to try to lock in the outlines of a deal before President Xi Jinping arrives at the White House on Wednesday, September 24. The two storylines share an address: both run straight through the question of who, exactly, controls American economic policy in the last weeks before a midterm election.

The rate hike and what Trump said

The Federal Reserve on Wednesday approved its first interest rate hike in more than three years, with the Federal Open Market Committee voting 12 to 0 to increase its key interest rate by 25 basis points, moving the overnight funds rate to a target range of 3.75 percent to 4 percent. Warsh described the decision at his press conference as "a sober decision, serious decision, responsible decision," adding: "The plain fact is that inflation is too high and has been for too long."

New policy projections showed 16 of 18 policymakers anticipate at least one more quarter-point hike by the end of this year, with only two seeing rates remaining stable from here. Warsh said again Wednesday that he is opposed to sharing forward guidance and did not submit a projection himself.

Trump's reaction was anything but restrained. The president acknowledged he had discussed with Warsh the Fed chair's plans before the vote, telling reporters: "I talked to Kevin and I said, 'you might as well vote with the board because it's not going to matter.'" Trump also said he wants the central bank to slash interest rates to 1 percent "or less." Then he turned on the committee. "The board is very hostile. They're very political. They're doing the wrong thing," he said. "They're raising the rates to make Trump do as bad as they can possibly can do," the president said before heading to a campaign event for Republican Senate candidate Michael Whatley.

Trump's initial reaction was relatively mild compared with his relentless condemnation of his last handpicked Fed chair, Jerome Powell. While he bashed Warsh's colleagues as "very hostile" and "very political," he singled out the Fed chief for praise: "He's a good man, Kevin Warsh."

At his press conference, Warsh demurred on the question of presidential involvement in the Fed decision, telling reporters: "I've got nothing for you on a discussion with the president." White House Senior Deputy Press Secretary Kush Desai, appearing on Fox News, called it a "rather unfortunate decision by the Federal Reserve" that was "not backed by a particularly compelling economic case."

The episode immediately resurfaced the question of Fed independence. In the week before the September vote, the president, vice president, Treasury secretary, and one of the president's senior economic counselors had all urged the Fed not to raise rates, an unusually broad public pressure campaign even by the standards of Trump's long-running criticism of the central bank. Vice President JD Vance had said "we believe that the Fed should be lowering interest rates," adding, "We're doing a lot of things to try to keep those interest rates down, but it would be nice to have some help from the Federal Reserve."

People in the Trump administration argued the Fed ought not to intervene in the economy ahead of midterm elections. That idea is not well supported by the historical record, according to CNN's reporting. The Fed is constitutionally separate from the White House. Trump's admission that he spoke to Warsh before the vote does not by itself establish that the chairman took direction from the president. But people in Washington are asking how much, if at all, Warsh is consulting with a president who has been willing to cross red lines in his quest for lower rates, questions that are especially sensitive because the Fed is designed to be insulated from political winds.

The Xi summit: four days and counting

The rate fight is one pressure point going into Wednesday. The other is Beijing. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng met Sunday to try to tee up potential agreements on AI, tariffs, and critical minerals for the Washington summit between Trump and Xi, with talks at JP Morgan Chase's Manhattan headquarters running all day. Greer was also at the table.

Key topics include the status of the U.S.-China trade truce set to expire on November 10, flows of Chinese rare-earth magnets and critical minerals that U.S. officials say are insufficient, and potential guardrails for artificial intelligence after reports of security breaches involving AI models.

Under the existing truce, China promised to restore the flow of critical minerals to U.S. and global users. A senior U.S. official told reporters Friday that China's performance on that front "has not been up to par" and would be a topic for discussion ahead of the summit.

Many of the issues the three officials will have to work through are holdovers from the leaders' meeting in Beijing in May, including an effort on both sides to cut tariffs on non-strategic goods and Chinese pledges to increase purchases of U.S. agricultural goods by $17 billion a year and to purchase more than 200 Boeing aircraft.

Iran is also on the table, whether or not it appears on the official agenda. Bessent told the House Financial Services Committee this week that he has held private discussions with Chinese officials over U.S. efforts to cut off Iran's oil trade. China is the largest buyer of Iranian oil, and Bessent's Treasury Department has been ratcheting up pressure on financial institutions handling that commerce, fueling speculation that Chinese banks could eventually be targeted.

China's Commerce Ministry confirmed Saturday that He would lead a delegation of Chinese companies to the U.S. to participate in economic and trade consultations ahead of the summit, mirroring a group of U.S. chief executives that Trump brought to Beijing in May. On Friday, U.S. auto industry groups urged the president to maintain an effective ban on Chinese vehicle sales in the United States on national security grounds.

Expectations in Washington are not high. Anna Ashton, a longtime China trade analyst and founder of Ashton Intelligence, said: "I think there will be some show of deliverables because of the fact that it's a presidential summit coming, but I don't feel like we're on the verge of some sort of breakthrough." She added: "I think status quo is probably both sides' general best expectation."

The summit will be the first Chinese state visit to the United States since 2015, when President Xi was received by President Barack Obama. Trump announced the September 24 date publicly on July 23, saying artificial intelligence would be among the subjects discussed. Later planning placed Xi's arrival in Washington on September 23, followed by the formal White House program on September 24 and 25. The day is set to end with a state dinner in the White House East Room, at which Trump and Xi are expected to make speeches.

Why both stories land in the same place

The Fed hike and the Xi summit pull at the same thread. A rate increase to 3.75 to 4 percent strengthens the dollar, complicates China's export math, and raises borrowing costs for the U.S. government at a moment when Washington is already carrying $40 trillion in debt. Trump wants rates down and a deal with Beijing simultaneously. With the leaders' 2025 Busan truce due to expire in November, both sides are under pressure to extend the pause on major tariff escalation and rare-earth export controls. A Fed that keeps tightening narrows the room Trump has to offer economic sweeteners.

Congress is out. The Senate met briefly in a pro forma session last week, and the House has already left Washington until after the midterms. That means whatever comes out of the Trump-Xi summit and whatever Warsh does next will be executive-branch decisions, made without a vote, watched by an electorate that goes to the polls in roughly six weeks.

What to Watch

• Trump-Xi summit, September 24 to 25: Watch for whether a tariff truce extension is formally announced, whether Chinese rare-earth commitments are codified in writing, and whether Trump says anything publicly about the Iran sanctions question and Chinese oil purchases.
• Fed independence: Trump's admission of a pre-vote call with Warsh will face scrutiny on Capitol Hill when members return. With 16 of 19 FOMC members projecting at least one more rate hike this year, the White House pressure campaign is not over.
• November 10 tariff deadline: The current U.S.-China trade truce expires in seven weeks. If the summit produces no extension, the tariff clock starts ticking four days after the midterms.
• Warsh's dot: Warsh did not submit a projection dot at the September meeting. His decision on whether to do so in December will signal how independently he intends to operate.
• DOJ and the Fed: The Trump Justice Department opened and then closed an investigation into former Fed Chair Jerome Powell, reserving the right to reopen it once the Fed's inspector general issues a report on building renovation cost overruns, which could come at any time. That report remains pending.

Sources: CNBC (Fed rate decision) | CNN Business | Reuters via Yahoo Finance | Bloomberg | CNBC (Trump-Warsh) | Reuters via U.S. News | Bloomberg (Greer-Bessent) | HNGN | Charles Schwab (dot-plot analysis) | CNBC (Trump-Xi preview) | International Business Times (summit timeline)