'We might need to raise rates': Fed official put a rate hike back on the table — and it hinges on one thing

If 1 happening has remained changeless successful President Donald Trump’s archetypal and 2nd terms, it’s his unit connected Federal Reserve Bank Chair Jerome Powell to little involvement rates.

Last July, Trump talked astir firing (1) Powell, and the Department of Justice announced plans to motorboat a transgression probe into him. A justice blocked (2) the probe (twice), but Powell saw it arsenic nonstop governmental unit to little involvement rates.

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“The menace of transgression charges is simply a effect of the Federal Reserve mounting involvement rates based connected our champion appraisal of what volition service the public, alternatively than pursuing the preferences of the President,” Powell said successful a January 2026 connection (3).

It’s not that Powell hasn’t lowered rates. Between September 2024 and December 2025, the Fed’s cardinal overnight lending complaint fell (4) by 1.75%, with 3 cuts precocious past twelvemonth alone. It present stands (5) astatine conscionable implicit 3.6%. The White House would similar to spot it little still. Trump has called (6) for a complaint arsenic debased arsenic 1%.

Now, Powell and the Federal Reserve unit are grappling with what they see to beryllium a greater menace than Trump: Inflation.

Beth Hammack, president of the Federal Reserve Bank of Cleveland, told (6) Associated Press astir however ostentation could unit the Fed to raise rates alternatively of lowering them.

“I could spot wherever we mightiness request to rise rates if ostentation stays persistently supra our target,” she said.

The Federal Reserve Bank has a legislature mandate to support precocious employment and debased inflation, with a people ostentation complaint of 2% (7). Inflation fell to 2.4% successful January 2026, 0.6% little than erstwhile Trump took bureau successful 2025. But it’s inactive supra the Fed’s target.

“Inflation has been moving supra our people for much than 5 years now,” Hammack told (6) Associated Press.

Now, the Iran warfare — and its interaction connected state prices and planetary proviso chains — is exacerbating the situation. Gas prices stay supra $4 a gallon, up 30% owed to the Iran war, CNBC reports (8).

A caller study (9) from the Organization for Economic Co-operation and Development (OECD) predicts that the U.S. could person 4.2% ostentation by the year’s end, the highest successful the G7.