President Trump spent last year demanding rate cuts from the Federal Reserve. Investors now expect his handpicked chairman to reverse course and start raising them this week.

The case for raising rates is a measure of how much the outlook has shifted since Kevin Warsh took over the central bank in May. The war with Iran has gone on longer than officials and investors expected and has pushed energy prices higher in recent weeks. New tariffs have taken effect. The AI build-out has strained supply chains for electricity and technology equipment, adding to demand faster than it has added to the economy's capacity to meet it.

That leaves Warsh facing the fight Trump hoped he would avoid when he selected the new chairman. Trump has said for months that he trusts Warsh to do the right thing, a formulation that has spared the new chairman the treatment faced by his predecessor, Jerome Powell. Raising rates before the midterm elections would test how long that lasts.

Ahead of this week's meeting, Kevin Hassett, the White House National Economic Council director, said on television Sunday that inflation is improving and the Fed doesn't need to raise rates. He said Trump "100% respects the independence of Kevin Warsh" and would "100% support" whatever the central bank decides.

At the same time, he conceded Trump wouldn't be "super happy" about a rate increase and said the Fed risks its reputation for staying out of politics when it changes rates near an election.

The reverse is also true. With the White House demanding lower rates, standing pat when investors widely expect an increase would feed the suspicion that Warsh was accommodating the president who appointed him.

The Fed's rate decisions are meant to be made independently of the White House, an arrangement that keeps short-term political pressure out of monetary policy. The assumption is that elected officials facing voters will always prefer lower rates than may be warranted. Changing rates near an election isn't unusual; the central bank raised rates before a political convention in 1988 and ahead of elections in 1994, 2004, 2018 and in 2022, when Joe Biden was president.

One year ago, Warsh criticized the Fed in television interviews for moving too slowly to cut rates. Officials ultimately lowered them three times late in the year as insurance against a labor-market slump.

Warsh has said his views track conditions rather than politics. Asked in July 2025 whether his call for cuts at the time was shaped by the president who might select him, he cited episodes in which he had been early and the Fed late. "There's a time for a bird to change his feathers, and it's with the times," he said on CNBC. "It has nothing to do with this president."

Last year's cuts coincided with the most sustained public campaign against the Fed in decades. Trump spent months attacking Powell and threatened to have him prosecuted for fraud. He seated a top economic adviser, Stephen Miran, on the board, and Miran dissented in favor of looser policy at all six meetings he attended. Trump also tried to remove Fed governor Lisa Cook, the first attempt by a president to fire a Fed governor. She kept her seat only after the Supreme Court intervened, and the case is still live.

The administration and outside allies who urged cuts insisted throughout that the inflation problem was solved and accused the Fed of finding excuses not to cut. Inflation has made no progress toward the Fed's 2% goal in more than a year.

The week before he selected Warsh, Trump telegraphed a core anxiety about the decision when he said candidates tell him what he wants to hear and then do as they like once confirmed. "It's amazing how people change once they have the job. It's too bad, sort of disloyalty, but they got to do what they think is right," said Trump, who had earlier chosen Powell for the top job.

Warsh has said little about any pressure he currently faces. People who have spoken with Warsh say he thinks the Powell Fed made matters worse by saying things that were unnecessarily antagonistic, such as narrating how tariffs would raise prices or defending the central bank's independence in public. Warsh's approach has been to avoid provocation by saying less.

At the Fed's last meeting in July, three Fed presidents voted against holding rates steady, preferring a rate increase. The White House has for months explained the Fed's drift toward raising rates by blaming those around Warsh, implying that the man Trump chose to lead the central bank agrees with him but is boxed in by a hostile monetary-policy committee.

The administration's explanation became harder to sustain when, in the run-up to this week's policy meeting, two influential Fed officials kept the door open to holding rates steady. If Warsh leads his colleagues to raise rates this week, it would be harder to argue he is being dragged somewhere.

Warsh had narrowed his own options over the summer. He opened his chairmanship in June with a press conference that left investors expecting a more muscular response to inflation, then held rates steady in July without explaining how that would bring inflation down. Long-term yields rose while he spoke, a sign investors weren't sure his tough talk would translate into policy.

A keynote speech in August corrected course. Warsh said he saw little evidence that borrowing conditions were restraining the economy, and that the summer's better inflation readings hadn't convinced him the underlying trend was improving. Holding again now would leave him as a chairman whose warnings cost nothing to ignore.

Friday's inflation report closed off the last exit. A key measure of consumer prices rose more than expected in August, breaking two months of improvement that had tentatively validated the Fed's own forecast. Investors raised the odds of an increase this week to about 90%. Because the report landed during the Fed's premeeting quiet period, no official could push back on that.

Douglas Holtz-Eakin, a Republican economist who ran the Congressional Budget Office, thought before July that Warsh had no need to risk a row with the White House by raising rates before this fall's midterm elections. But since the July meeting, Warsh's words and an economy shaped by an energy shock and the AI boom have left him nowhere to stand. "His hand is getting forced," he said. "Kevin Warsh is an outstanding politician, and he's going to have to handle it."

What that looks like is the only question left, he said. The president and the chairman could tacitly agree to let Trump berate Warsh while Warsh absorbs it, or Trump could move on like nothing happened. "Trump will change the subject as opposed to take them on, because he can't say he made a mistake," said Holtz-Eakin.

Warsh has repeatedly said he won't be swayed by political considerations. "They chose an independent guy to do an independent job and that's exactly what I plan on doing," Warsh told lawmakers this summer.

Some who think the Fed should never have cut last year and should have already begun raising think this is the wrong week to start. Michael Strain, a conservative economist at the American Enterprise Institute, said he would have voted to raise rates in July, but if the case wasn't strong enough to move then, not enough has happened since to justify acting weeks before an election.

He worries a hike now would trigger a response from Trump that severely damages the political consensus that has protected the Fed's independence since the 1990s. "The unfortunate reality for the Fed is that it cannot ignore the fact that President Trump is extremely hostile to this important institution," Strain said. He thinks investors would get over another hold faster than the Fed would get over a fight with Trump.

The counterargument is that the case for waiting has been eroding all year, and not just since July. With energy prices rising again, officials can no longer point to much that would quickly bring inflation down on its own.

Others think the calendar is beside the point. "I just don't think it's going to be a factor at all at this meeting," said Richard Clarida, who was Fed vice chair from 2018 to 2022.