Before Kevin Warsh took over, President Donald Trump had constantly feuded with the then Fed Chair Jerome Powell to cut rates|@federalreserve|X

Economists expect the Federal Reserve to hike rates today for the first time since July 2023, following a hotter-than-expected inflation report last week and surging oil prices driven by the war in Iran.

According to the CME FedWatch Tool, investors now see a 92% chance of a 25-basis-point increase at today’s Federal Open Market Committee meeting, up from 70% last week. At the start of 2026, markets had largely expected rate cuts instead.

CNBC’s survey of 29 fund managers and strategists found that most view at least two rate hikes over the next year.

Though Fed Chair Kevin Warsh did not indicate his decision at the recent Jackson Hole, Wyoming, speech, the 10-Year Treasury Yield’s climb to 5.04% yesterday (its highest in 19 years) before closing lower is significant. The yield, a key benchmark for consumer and corporate lending, rising signals a probable Fed rate increase.

Politics and the Fed
Before Warsh took over, President Donald Trump constantly feuded with then-Fed Chair Jerome Powell over cutting rates.

A hike could spell trouble for Trump and the GOP, arriving right before a tense midterm election as economic warning signs mount.

Impact of increasing rates
Borrowing costs for mortgages, car loans, and credit cards would rise, while returns on savings would increase. Businesses could also slow hiring as financing becomes more expensive.

Economists have raised their average inflation forecast to nearly 3.5% for 2026 and 2.85% for 2027. 

Despite tighter policy, respondents expect GDP growth of about 2.25% this year and next, while putting the probability of a recession over the next 12 months at 29%.

The Iran war, elevated oil prices, and persistent inflation remain key risks to economic growth.