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

WASHINGTON (AP) — The Federal Reserve is widely expected to lift its short-term interest rate Wednesday for the first time in three years to fight stubbornly high inflation, a move that would put the central bank at odds with President Donald Trump’s support for a cut. An increase in the Fed’s rate, currently about 3.6%, isn’t guaranteed because Fed Chair Kevin Warsh doesn’t provide the signals about 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.

A rate hike would throw another sharp shift into a volatile period for the economy and financial markets. As recently 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 prices, inflation is likely 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, said. “Given what everyone has been through in the last few years of high inflation, consumers are more sensitive, companies are more sensitive, they raise prices faster … The risks are much more on more persistent inflation than it falling quickly.” Surging investment in AI data centers has also been accelerating inflation and contributing to higher longer-term interest rates, though now leading companies are discussing slowing the technology’s development. All eyes are on interest rates ahead of the midterms The Fed’s potential rate hike comes just seven weeks before the midterm elections in which high prices 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 said, “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. Kevin Hassett, Trump’s top economic adviser, said Sunday on CNN that Trump “100% respects the independence of Kevin Warsh.” Yet at the same time, Hassett suggested in a Fox News interview that the Fed shouldn’t hike so close to the mi… The risks are much more on more persistent inflation than it falling quickly.”Surging investment in AI data centers has also been accelerating inflation and contributing to higher longer-term interest rates, though now leading companies are discussing slowing the technology's development.All eyes are on interest rates ahead of the midtermsThe Fed's potential rate hike comes just seven weeks before the midterm elections in which high prices and affordability have taken key roles.