White House pressure fails to stop hawkish shift! Fed rate hike is imminent, Warsh's relationship with Trump faces a major test.

Note that markets expect the Fed to raise rates on Wednesday, the first time since 2023because policymakers' confidence that inflation can cool sufficiently without at least a nudge from the central bank is eroding. This is likely to strain the relationship between Chair Kevin Warsh and U.S. President Trump. Since December, officials have held the benchmark rate steady in a range of 3.5% to 3.75%, when most policymakers believed progress on lowering inflation was being held back by temporary factors. Doubts within the Fed about that stance have steadily grown this year, and a recent hot inflation report appears to have tipped the scales toward at least one near-term rate hike. Investors on Tuesday put the probability of a quarter-point hike this week at more than 90%, and have priced in another increase before year-end. "At some point, they have to raise rates," said Sebnem Kalemli-Ozcan, an economics professor at Brown University. "And in fact, the longer this is delayed, the more entrenched inflation becomes and the bigger the problem gets." The Fed will release its post-meeting statement at 2 p.m. in Washington on Wednesday, along with updated economic and rate projections. Warsh is scheduled to hold a post-meeting press conference 30 minutes later. White House concerns A rate hike could draw fresh criticism from the White House. Just on Sunday, Trump repeated his argument that the U.S. should have the world's lowest borrowing costs. Since Trump appointed Warsh to succeed Jerome Powell as chair, the president has significantly toned down his attacks on the Fed. He even suggested that Warsh is being pressured by other Fed officials to raise rates, and accused those officials of being "very political." But in a late-August speech, Warsh made clear that underlying price pressures have not materially improved, and that if the Fed does not receive fresh assurances that inflation is on a path toward the central bank's 2% target, then the Fed "still has work to do." Two weeks later, data showed core inflationexcluding food and energyrose more than expected in August. Although the increase was largely driven by a record surge in wireless phone services, many analysts said the Fed cannot ignore the report after more than five consecutive years of missing the 2% target. Press conference When Warsh takes questions from reporters, his remarks will be closely watched. In his post-meeting appearance on July 29, he failed to give a clear explanation for the Fed's decision to hold rates steady and offered little insight into his views on the economy. That triggered a jump in long-term Treasury yields and a wave of criticism from traders and economists. However, Warsh's speech at Jackson Hole, Wyoming, last month appeared to calm investors' concerns. A rate hike on Wednesday could further repair any residual damage. Reporters are likely to press the chair again for an explanation of the committee's decision and to try to capture any hint of whether this hike might mark the start of a tightening cycle. While he is unlikely to give a clear signal on the future rate path, if he continues to refuse to share his views on current economic conditions, he could frustrate investors again. Possible dissents Concerns within the Fed have been building this year: a series of seemingly temporary factors, including tariffs and the Iran war, threaten to entrench high inflation in the public's expectations. At the Fed's July meeting, three officials dissented in favor of a rate hike. A hike at this meeting could also be supported by several colleaguesthose who said before the August inflation report was released that they needed to see improvement in price data to keep policy unchanged. But the decision may not be unanimous. Governor Christopher Waller has sent mixed signals on his reading of inflation, while New York Fed President John Williams said earlier this month that there is still evidence disinflation is underway. Several economists also predict that Vice Chair for Supervision Michelle Bowman, seen as closely aligned with the White House's position, may dissent in favor of holding rates steady. Policymakers will also submit updated economic and rate projections this week. Economists in a recent survey expect their outlooks for unemployment and inflation to remain broadly unchanged. The rate projections should reveal how many officials expect more hikes this year. However, those projections likely will not include Warsh's contributionhe did not participate when officials last submitted projections in June.