Tomorrow afternoon, the Federal Reserve will tell us what it’s doing with interest rates — and for the first time in years, the smart money says it’s going up, not down.
That’s a strange thing to write, because the President of the United States has spent weeks demanding the opposite. And the man he’s demanding it from is Kevin Warsh — the Fed chair Trump himself picked to replace Jerome Powell back in May.
So we’ve got the president publicly leaning on his own hand-chosen chairman, and the chairman looking like he’s about to do the exact thing the president doesn’t want. I’ve been watching Fed fights since I earned my CPA in 1981, and I’ve covered a lot of them on TV. This one is worth understanding, because whichever way it breaks, it lands in your wallet.
Let me lay out what’s actually happening, make the honest case for each side, and then tell you what to do about it.
Where things stand
The Fed’s benchmark rate has sat at 3.5%–3.75% all year. The rate-setting committee meets tomorrow, Wednesday, and announces at 2 p.m. Eastern.
As recently as this summer, the debate was about cutting. Then inflation refused to cooperate. After the August Consumer Price Index came out on Sept. 11 — headline inflation stuck at 3.4%, and the “core” reading (which strips out food and gas) running hotter than economists expected — traders flipped hard. Market-implied odds of a quarter-point hike jumped to nearly 90%, according to CME Group’s FedWatch tracker. That would be the Fed’s first rate increase since 2023.
Meanwhile, Trump has gone the other direction, loudly. He’s said the U.S. should have “the lowest interest rate in the world.” He’s called committee members “clowns.” He even threatened to cut off trade with countries that run surpluses with us unless the Fed eases. Vice President Vance and Treasury Secretary Bessent have joined the push for cuts.
Two people, same country, opposite demands. Here’s the case for each — and it’s closer than the shouting suggests.
The case for raising rates (Warsh’s side)
Inflation has been above the Fed’s 2% target for the entire year, and it’s not falling anymore. Worse, the August report showed price pressure broadening — core inflation ticked up 0.3% for the month, and shelter costs, which had been cooling, started climbing again. That’s the pattern central bankers dread: a shock that started in one place (energy) leaking into rent, services, and everyday goods.
Warsh has also argued that financial conditions simply aren’t tight right now — meaning the current rate isn’t doing much to cool things off. At the Fed’s Jackson Hole conference in August, he made clear he wants convincing proof that inflation is heading down before he’ll ease. His line: short-term interest rates are the Fed’s main tool for the job, and he intends to use it.
And there’s a credibility angle you can’t ignore. A brand-new chair, installed by a president openly demanding cuts, has to prove the Fed still calls its own shots. If Warsh caves under that pressure, markets stop believing the Fed will ever fight inflation — and that belief is half the battle. Some analysts think Trump’s public pressure may have actually forced Warsh’s hand toward a hike, just to demonstrate independence.
The case for cutting (Trump’s side)
Here’s what gets lost in Trump’s Truth Social posts: there’s a legitimate economic argument underneath, and Bessent has made it well.
Most of this year’s inflation traces back to an oil shock. The war with Iran has choked off a major artery of the world’s energy supply, pushing crude above $100, gas to roughly $4.30 a gallon, and diesel to a record $6. Gasoline alone drove more than a third of August’s inflation.
The textbook central-banking response to a supply shock like that is to “look through” it. Raising rates doesn’t produce more oil. It just piles pain on top of pain — slower growth, weaker hiring — while doing nothing about the actual cause.
The classic rule is: don’t hike over a one-off supply shock unless it starts spilling into wages and broader prices. Bessent’s argument is that we’re not clearly there yet. And he’s got a data point: the annual core inflation rate, at 2.4%, is the lowest it’s been since 2021 and nearly at the Fed’s target.
That’s a real argument. It’s the same logic the Fed itself used earlier this year when it held rates instead of hiking.
Where Trump’s position gets weak is the delivery. “Lowest rates in the world regardless of the formulas” isn’t economics — it’s a wish. And threatening trade wars to force rate cuts has no sound basis; it’s pressure, not policy. That’s the part that makes economists wince, because a Fed that takes orders from the White House is a Fed nobody trusts to keep prices stable.
So who’s right?
Honestly? Both sides are holding a real piece of the truth.
The administration is correct that you don’t normally crush the economy to fight an oil spike. The Fed is correct that the spike now looks like it’s spreading — and that the moment it stops being “one-off” is the moment you have to act.
The entire fight comes down to a single judgment call: have we crossed the line from a temporary shock into broadening inflation yet? The August core reading is what tipped the Fed toward “yes.” Reasonable economists can — and do — disagree about whether that evidence is strong enough.
Where I come down: on the pure economics, this is a genuine coin-flip that the data nudged toward a hike. On the process, the president is on far shakier ground. Publicly bullying a central bank and tying trade policy to rate cuts is exactly how countries lose the credibility that keeps their borrowing costs low in the first place. The irony is that the pressure may be backfiring — pushing Warsh to hike partly to prove he can’t be pushed.
What this means for your money
Whatever the Fed does tomorrow, here’s how to play it:
- Lock in savings rates now. If the Fed hikes, high-yield savings accounts and CDs get more attractive. But if this turns out to be the last hike of the cycle, today’s CD rates may be near the peak. If you’ve been sitting on cash, this is the window to lock a rate before they eventually turn down.
- Kill variable-rate debt first. Credit cards and any variable-rate loan track the Fed closely. A hike makes that balance more expensive almost immediately. If you’re carrying a balance, prioritize it now — a balance-transfer card can freeze the damage while you pay it down.
- Don’t try to time a mortgage to the meeting. Long-term mortgage rates move on inflation expectations, not just the Fed’s overnight rate — and the market has largely priced tomorrow in already. If you find a rate that works for your budget, take it. Waiting for the “perfect” number is how people miss good-enough ones for years.
- Watch October, not just tomorrow. The next inflation report (out Oct. 14) will show whether August’s gas spike was a blip or a trend. That reading — not tomorrow’s headline — will shape whether more hikes are coming.
The Fed’s decision is one afternoon of news. What you do with your own rates and debt is what actually moves your net worth. Handle that part, and tomorrow’s announcement becomes something you watch, not something that happens to you.