Federal Reserve is expected to raise its benchmark rate, defying Trump’s demands

Federal Reserve is projected to raise.

Key points

• Federal Reserve Board Chairman Kevin Warsh speaks at a news conference at the Federal Reserve in Washington, Wednesday, July 29, 2026.
• Kevin Hassett, Trump's top economic adviser, remarked Sunday on CNN that Trump "100% respects the independence of Kevin Warsh."
• Job market rebounds as employers add 162, 000 jobs; the unemployment rate stayed at 4.1%.
• Still, if the Fed does growth its rate Wednesday, then Warsh will face a new set of questions: How numerous hikes will the Fed implement?
• But Wall Street traders expect three hikes – in September, December, and March – according to futures rates.

Federal Reserve is projected to raise its benchmark rate, defying Trump's demands. By: Christopher Rugaber, Associated Press – September 15, 2026.

Federal Reserve Board Chairman Kevin Warsh speaks at a news conference at the Federal Reserve in Washington, Wednesday, July 29, 2026. (AP Photo/Mark Schiefelbein).

For context, the Federal Reserve is widely projected to lift its short-term interest rate for the first time in three years to fight stubbornly high inflation.

For context, a quarter-point growth in the Fed's rate, at present regarding 3.6%, isn't guaranteed as Fed Chair Kevin Warsh doesn't provide the signals regarding next moves that his predecessors did. Still, most analysts and economists expect a hike after a speech two weeks ago at the Fed's annual conference in Jackson Hole, Wyoming, in which Warsh argued that the Fed had not yet achieved its goal of putting inflation in check.

Meanwhile, a rate growth would throw another sharp shift into a volatile period for the economy and financial markets. As lately as March, the Fed had forecast it would cut its rate once this year. But with the Iran war flaring up again and causing sharp increases in oil and gas rates, inflation is anticipated to remain higher than the Fed's 2% target for even longer.

"I don't see any end to the war in Iran right now, " Kristin Forbes, an economist at MIT's Sloan School, remarked. "Given what everyone has been through in the last few years of high inflation, consumers are more sensitive, firms are more sensitive, they raise costs faster. The risks are much more on more persistent inflation than it falling rapidly."

Though now leading businesses are discussing slowing the technology's development, surging investment in AI data centers has additionally been accelerating inflation and contributing to higher longer-term interest rates. All eyes are on interest rates before the midterms.

In practice, the Fed's potential rate hike comes just seven weeks before the midterm elections in which high rates and affordability have taken key roles. Trump has demanded that the Fed cut rates, a move that isn't on the table, and on Sunday the president remarked, "the United States is so strong we should be paying the lowest interest rate in the world."

Trump repeatedly attacked Warsh's predecessor, Jerome Powell, in harshly personal terms, upending decades of tradition in which presidents treated the Fed as independent.

Yet meanwhile, Hassett suggested in a Fox News interview that the Fed shouldn't hike so close to the midterms.

"I'd be wary of a rate hike. I think if you want an independent Fed, then one thing the Fed does is it stays out of the way of elections, " Hassett remarked.

Financial markets expect that Warsh and the central bank will brush off such warnings. Traders now see a 90% chance the Fed will hike Wednesday, according to futures rates. That figure jumped after Friday's inflation report indicated that costs remain stubbornly high and core inflation. It excludes volatile food and energy, picked up in August from the previous month.

After that report, and Warsh's tough talk on inflation late last month, most economists argue that Warsh will have to hike rates or risk undermining his credibility with financial markets. As they did after a Fed session in late July when Warsh failed to convince markets he was willing to lift rates if needed, longer-term interest rates, such as those on the 10-year and 30-year Treasury bonds, could spike if he doesn't hike.

"At the end of the day the Chair's repeated stern warnings on inflation intolerance risk institutional credibility absent some action to back it up, " Michael Feroli, an economist at JPMorgan Chase, wrote in a preview of the Fed's session. A rate growth could raise other questions.

Some members of the Fed's interest-rate setting committee still expect inflation, outside of food and energy, to fade over time and may not feel a rate hike is necessary.

But Warsh has not created that argument. Instead, in his Jackson Hole remarks, he remarked recent inflation reports "do not tell me that underlying trends have improved, " adding that if such improvement wasn't seen shortly, "we have work to do."

Ironically, by boosting Fed credibility, a rate hike could hold down longer-term interest rates that consumers pay for things like mortgages and auto loans. Some of the recent spike in mortgage rates has probable reflected worries among investors that the Fed wasn't committed to fighting inflation. Investors typically demand higher yields to own bonds when inflation is elevated.

Still, if the Fed does growth its rate Wednesday, then Warsh will face a new set of questions: How numerous hikes will the Fed implement? How effective will they be in reducing inflation when much of it stems from higher oil rates, something the Fed can't control? What will they do if an AI slowdown threatens to slow the economy. It would typically obtain the central bank to cut rates?

Matthew Luzzetti, chief U.S. Economist at Deutsche Bank, remarked it is rare for the Fed to lift its key rate just once. It is anticipated to have little impact on the economy, and so multiple hikes are probable.

But how the Fed characterizes feasible rate increases on Wednesday could provide clues to its next steps, he noted. For example, if Warsh suggests the Fed is unwinding the three cuts it created in late 2025 – when it feared that unemployment was rising – that would suggest two more hikes would be needed.

Alternatively, Warsh could portray a hike as an act of "risk management, " Luzzetti remarked, with the Fed expecting inflation to cool but hiking rates to essentially ensure it falls. That could point to possibly just two increases.

Warsh has resisted providing such guidance so far. But Wall Street traders expect three hikes – in September, December, and March – according to futures rates. Regarding the Author(s). Christopher Rugaber, Associated Press. Economy Christopher Rugaber, Associated Press September 11, 2026.

U.S. Inflation picked up as gas rates marched higher due to conflict in the Middle East.

In practice, the Labor Department remarked Friday that the consumer rate index rose 3.4% last month compared with a year ago, the same as in July. As costs jumped 0.4% from July to August, up from an growth of just 0.1% the previous month, but on a monthly basis, inflation accelerated. More From This Author. News Christopher Rugaber, Associated Press September 10, 2026.

U.S. Wholesale rates rise in latest sign of stubborn inflation as oil costs continue to climb. News Christopher Rugaber, Associated Press August 28, 2026.

Fed Chair Warsh signals rate hikes may be needed with inflation still elevated. News Christopher Rugaber, Associated Press August 13, 2026. Wholesale cost inflation slowed last month as gas, food costs fall. News Magnolia Tribune September 15, 2026. Magnolia Mornings: September 15, 2026. News Paul Wiseman, Associated Press September 4, 2026.

U.S. Job market rebounds as employers add 162, 000 jobs; the unemployment rate stayed at 4.1%.

Employers have been reluctant to let go of the staff they have, so most Americans enjoy unusual job security and unemployment is low. Economy Paul Wiseman, Associated Press August 26, 2026.

U.S. Economy expanded at sluggish 1.5% pace in second quarter, on par with earlier estimate.

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In short, federal Reserve is expected to raise its benchmark rate, defying Trump’ s demands is the central thread here, and readers can expect follow-up reporting as the picture becomes clearer.