Renowned economist Mohamed A. El-Erian has a theory about President Donald Trump's relationship with the Federal Reserve: the problem was never the institution, it was the person.

El-Erian took to X on Wednesday and suggested that Trump's recent supportive and softer stance on new Fed Chair Kevin Warsh indicates the long-standing tension between Trump and outgoing Chair Jerome Powell was more of a "personal issue" than a "structural rift" between the White House and the central bank.

Trump Gives Warsh Rate Freedom

In an interview with the Washington Examiner this week, Trump said he would allow Warsh to make his own decisions on interest rates, calling him "very talented." That's a stark contrast from the pressure campaign the White House waged on Powell to cut rates.

Earlier this year, Trump said his 2017 decision to choose Powell over Warsh as Fed chair was a "really big mistake." Trump explained that Warsh had been his preferred runner-up candidate, but then-Treasury Secretary Steven Mnuchin persuaded him to back Powell despite his own reservations.

Fed Faces Pressure Over Rate Path

The President's remarks come amid intense scrutiny over Warsh's potential moves and their impact on the Fed's credibility. Billionaire investor Ray Dalio had previously warned that if Warsh chooses to reduce interest rates, it could be detrimental given the current state of the U.S. economy.

Notably, minutes from the Federal Reserve's April meeting showed policymakers shifted from considering rate cuts to debating potential rate hikes as the Middle East conflict and the blockade of the Strait of Hormuz drove oil prices and inflation expectations higher. A majority of officials indicated further tightening could become necessary if inflation stays above the Fed's 2% target, while several members wanted to remove the central bank's easing bias altogether.

Warsh's appointment as Fed Chair was met with criticism, with Sen. Elizabeth Warren (D-Mass.) accusing him of being Trump's 'sock puppet.' She argued that his confirmation represented "another step in Trump's attempt to take over the Fed."