The Federal Reserve is on the cusp of a momentous decision on Wednesday. The central bank is widely expected to raise interest rates by a quarter of a percentage point to a new range of 3.75 percent to 4 percent.
If the Fed follows through, it will be the first rate increase since July 2023. It would also immediately put Kevin M. Warsh, who took over as chairman in May, in the cross hairs of President Trump less than two months before midterm elections that will determine whether Republicans retain control of Congress.
Just days before the Fed’s September gathering, Mr. Trump reiterated that the United States “should be paying the lowest interest rate in the world.” That followed the president’s threat this month that he would cut off a broad swath of U.S. trade if the Fed did not lower rates.
On Wednesday, the Fed will release its rate decision at 2 p.m. in Washington. Mr. Warsh will hold a news conference at 2:30 p.m.
Here is what to watch for:
How Many Dissents?
The number of dissents will depend on what decision the Fed makes. Holding rates steady would generate at minimum three opposing votes, probably from the same officials who voted against the Fed’s decision to do exactly that in July.
Back then, Beth M. Hammack of the Federal Reserve Bank of Cleveland, Neel Kashkari of the Minneapolis Fed and Lorie K. Logan of the Dallas Fed voted in favor of a quarter-point increase. They argued that higher rates would have put the central bank in a better position to tackle elevated inflation.
Many officials have since sent a consistent message that if inflation does not soon ease, they will be prepared to raise rates. Financial markets overwhelmingly believe that this condition has been met, with the odds of a rate increase now above 90 percent. As a result, Mr. Warsh and his colleagues on the policy-making committee have limited latitude to avoid lifting rates.
One of the most effective ways for the Fed to send a clear message on Wednesday that it is serious about tackling inflation is for there to be zero dissents to raising rates. That is not guaranteed, however.
Several top officials sought to carve out flexibility for the Fed ahead of September’s gathering. They included both John C. Williams, who as president of the New York Fed is the vice-chair of the Federal Open Market Committee, and Christopher J. Waller, a Fed governor. Neither conveyed an urgency to raise rates, but each indicated that hotter inflation data would clinch the case to proceed.
August’s inflation data, which came in higher than expected, probably met that threshold, suggesting both will support a decision to raise rates if Mr. Warsh pushes the committee in that direction.
Post-Hike Plans
Perhaps as important as the move itself is the rationalization that Mr. Warsh provides for proceeding with a rate increase. How he frames the decision will heavily influence expectations for what the Fed does next.
Rate moves are rarely one-offs, meaning it is more likely that the central bank will deliver a series of increases. The question is not only how many there are but also how far apart they will be spaced.
Most economists see the Fed raising rates again in December. The next meeting is in October, just days before the midterms, so unless inflation has taken a material turn for the worse, the central bank could easily hold off on taking action to avoid the perception that it is having any impact on the outcome.
Additional adjustments are on the table for 2027, but Mr. Warsh is unlikely to be specific about his plans.
That is partly a function of how uncertain the economic backdrop has become. Inflation is forecast to decelerate as the year progresses, but the pace is unclear, especially with the Iran war dragging on. At the same time, Mr. Warsh has purposely sought to keep things vague in order to retain flexibility for the Fed.
His predecessors would probably have leaned on the so-called dot plot, set to be updated on Wednesday, that tracks how officials see the trajectory for rates, growth, unemployment and inflation in the years to come. It is expected to show additional rate increases this year and next, helping to bound expectations about what the Fed has in store for borrowing costs.
However, Mr. Warsh is an avowed critic of the dot plot and has opted against submitting his own projections. If he dismisses the dot plot altogether, that could create confusion over how aggressively the Fed is prepared to act.
Bond Market Reaction
Mr. Warsh was swiftly rebuked by markets after his last meeting in July, when he sent mixed signals about the Fed’s commitment to reducing inflation back to 2 percent. Longer-term U.S. borrowing costs shot higher as investors pushed back the timing of potential rate increases until later this year.
Holding rates steady in September would risk a redux of that, especially after Mr. Warsh sent such a strong signal at his latest public appearance last month that he was indeed serious about his inflation pledge.
That kind of reaction would prove problematic for the Trump administration, which has taken aggressive steps over the past month to contain longer-dated borrowing costs. Treasury Secretary Scott Bessent has intervened in the bond market in a variety of ways, including most recently by buying back bonds outright. That has done little to quell Treasury yields. The 10-year Treasury yield, one of the most important interest rates in the world, is now trading around 5 percent, the highest level in years.
While the Trump administration is clear in its desire for lower rates from the central bank, a Fed that demonstrates its resolve in getting inflation down could help to keep overall borrowing costs set by market forces lower than would otherwise be the case.
With affordability issues top of mind ahead of the midterms, that outcome would be advantageous for the White House, investors say.
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