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

If one thing has remained constant in President Donald Trump's first and second terms, it's his pressure on Federal Reserve Bank Chair Jerome Powell to lower interest rates. Last July, Trump talked about firing (1) Powell, and the Department of Justice announced plans to launch a criminal investigation into him. A judge blocked (2) the probe (twice), but Powell saw it as direct political pressure to lower interest rates.

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Between September 2024 and December 2025, the Fed's key overnight lending rate fell (4) by 1.75%, with three cuts late last year alone. It now stands (5) at just over 3.6%. The White House would like to see it lower still.

Trump has called (6) for a rate as low as 1%. Now, Powell and the Federal Reserve staff are grappling with what they consider to be a greater threat than Trump: Inflation. Beth Hammack, president of the Federal Reserve Bank of Cleveland, told (6) about how inflation could force the Fed to raise rates instead of lowering them.

"I could see where we might need to raise rates if inflation stays persistently above our target," she said. The Federal Reserve Bank has a congressional mandate to maintain high employment and low inflation, with a target inflation rate of 2% (7). Inflation fell to 2.4% in January 2026, 0.6% lower than when Trump took office in 2025.

But it's still above the Fed's target. "Inflation has been running above our target for more than five years now," Hammack told (6) . Now, the Iran war — and its impact on gas prices and global supply chains — is exacerbating the situation.