President Donald Trump berated Jerome Powell for years as he sought to pressure Powell, then the Federal Reserve chairman, to cut interest rates. So far, he has given a pass to the new Fed chief, Kevin Warsh, whom he nominated this year.

Now, not even four months into Warsh’s tenure, the honeymoon might be over. Trump has ratcheted up his calls for an interest rate cut in recent weeks, setting the stage for a potential showdown after Wednesday’s decision from Fed policymakers.

Warsh faces a “time to choose,” as economists at UBS put it: Will the Fed hold its key rate steady yet again in the face of rising inflation, or will it increase the rate to battle stubbornly high prices — and potentially enrage Trump?

Trump adviser Kevin Hassett, chair of the National Economic Council, said he thinks the “president will have something to say about it” if the Fed makes a “big move” with rates. (Hassett was a candidate for the Fed job before Trump picked Warsh.)

“The president will have an opinion about it,” Hassett told CNBC on Friday. “I’m sure he believes that there’s plenty of room for interest rates to go down, and he voices that opinion while respecting the independence of the Fed.”

The Fed has not raised interest rates since 2023, when Joe Biden was president and the economy was contending with sky-high inflation. But market odds for an interest rate increase Wednesday were at more than 90% on Tuesday after inflation data for August came in hot at a 3.4% annual clip. The Fed’s target for inflation is 2%.

‘Just do your own thing’

When Warsh took office in May, Trump said he wanted the new central bank chairman to just focus on the job.

“Don’t look at me, don’t look at anybody, just do your own thing and do a great job,” Trump said at the time. That was in stark contrast with the insults Trump hurled at Powell, whom he nominated to be Fed chair during his first term.

Trump has not insulted Warsh, but he has become more vocal about his desire for a rate cut, once again raising questions about the Fed’s independence.

“I’d love to see lower interest rates,” Trump said at a July 29 White House event. Trump said Warsh was “fantastic” but claimed the Fed’s board was “political” and “they want to keep rates up.” Trump again brought up rates last month, saying: “We would really like to see interest rates come down.”

He went even further this month. “We should be paying the lowest interest rate in the world,” Trump said Sept. 4, after the consumer price index report showed inflation was not slowing. Trump complained that higher rates cost the country more on its debt. “We should be at 1% or a half a percent,” he said. “We shouldn’t be at 4%.”

Trump continued later in a social media post, “A STRONG COUNTRY MEANS A LOWER INTEREST RATE.” The post ended: “High interest rates put the U.S.A. at a very unfair disadvantage, and I won’t allow that to happen!”

The inflation situation

Several factors are stoking inflation.

Deutsche Bank analysts noted that “forward-looking elements of the inflation picture” have gotten worse. “Recent minutes to FOMC meetings showed the Committee is focused on three forces in particular — energy, tariffs / supply chains, and AI. At least two out of three of these factors points to more elevated inflation pressures” than the Fed faced at its July rate-setting meeting, they wrote.

Since then, the Trump administration has entered a potentially protracted trade war with Canada, which was America’s second-largest source of imports last year. Energy prices have soared back near all-time highs. On Tuesday, U.S. crude oil touched $106 per barrel, and international Brent crude oil traded around $109 per barrel. Gasoline prices remain 45% higher than in February, when the war with Iran started. Diesel prices have reached their highest level ever, putting pressure on farmers and truckers who rely on it.

“The cost of diesel gets into just about everything,” KPMG chief economist Diane Swonk recently told NBC News.

The expansive AI data center buildout has fueled economic growth while pushing some supply chains to their breaking points. Data in Friday’s inflation reading showed the price of computer software, accessories and related items rising 25.4% over the last year — the category’s largest increase on record. Consumer technology companies from Apple to Xbox to Amazon have raised some prices as a result.

A rate hike carries risks of its own, according to economists, including Moody’s Mark Zandi. The labor market, for one, is solid, if not spectacular. The unemployment rate is 4.1%, according to August jobs data released this month.

While inflation is high, the effects of Trump’s tariffs and energy shocks from the Iran and Ukraine wars should fade without any help, Zandi wrote on LinkedIn. So, given the current economic circumstances, if the central bank hikes rates, “it must push growth below potential, and that is hard to do without layoffs, rising unemployment, and igniting a self-reinforcing negative cycle,” he wrote.

Tech companies are shelling out hundreds of billions of dollars to buy equipment, build massive data centers and hire developers to support their AI ambitions, while corporations have reaped major profits. The average American, though, has seen wage growth slow to an annual rate of 3.1%, lagging behind the pace of inflation.

“The challenge is even more complicated because AI-related investment appears to be powering the economy, while the non-AI economy is already struggling,” Zandi said.