Fed Poised for First Rate Hike in Three Years, Putting Trump-Warsh Ties to the Test

The Federal Reserve is poised to raise interest rates for the first time since 2023 as it responds to inflation pressures, setting up a test of the relationship between Chair Kevin Warsh and President Donald Trump, who has repeatedly called for lower rates.

Bloomberg reported on September 15 that the Fed is expected to raise its benchmark rate by 0.25 percentage point at the Federal Open Market Committee meeting on September 16. Markets are pricing in more than a 90% chance of a hike at this meeting, while also reflecting the possibility of one additional increase by year-end.

The Fed has held its benchmark rate at 3.50% to 3.75% since December last year. While many policymakers had viewed the slowdown in price growth as being delayed by temporary factors, stronger-than-expected inflation readings have recently added to the case for further tightening.

Concern within the Fed intensified after core prices excluding food and energy rose more than expected last month. At the July FOMC meeting, three officials dissented from the decision to leave rates unchanged and argued for an increase.

A rate hike, if delivered, could also weigh on ties between Warsh and Trump. On September 13, Trump reiterated his longstanding view that U.S. borrowing costs should be the lowest in the world.

In a speech late last month, Warsh said underlying price pressures had not improved meaningfully. Without additional confidence that inflation is moving toward the Fed's 2% target, he said, there remains "work to do."

Markets are focused not only on the rate decision itself but also on whether more increases may follow. The Fed is due to release updated economic projections and its interest-rate outlook at this meeting, and investors will parse Warsh's press conference for clues on whether this move is a one-off step or the start of further tightening.