'We might need to raise rates': A top Fed official just put a rate hike back on the table — and it hinges on one thing
'We might need to raise rates': A top Fed official just put a rate hike back on the table — and it hinges on one thing
Laura BoastFri, April 10, 2026 at 11:15 AM UTC
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Federal Reserve Chairman Jerome Powell covers his face while answering a question during a Principles of Economics class at Harvard University on March 30 in Cambridge, Massachusetts.
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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“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President,” Powell said in a January 2026 statement (3).
It’s not that Powell hasn’t lowered rates. 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.
How inflation may force the Fed’s hand on interest rates
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. Gas prices remain above $4 a gallon, up 30% due to the Iran war, CNBC reports (8).
A new report (9) from the Organization for Economic Co-operation and Development (OECD) predicts that the U.S. could have 4.2% inflation by the year’s end, the highest in the G7.
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The best lever the Fed has to lower inflation is to raise interest rates. Higher interest rates suppress demand — making it more expensive to get a loan, buy a car or purchase anything on credit. That cools the economy.
Hammock’s Chicago counterpart, Austan Goolsbee, said that if inflation continues to rise while unemployment is low, the Federal Reserve may have to raise interest rates.
“There is an obvious playbook, which is that rate increases have to be on the table,” he told the
Hammock added she would like to see the Fed’s benchmark rate steady “for quite some time.”
That’s because the Fed is walking a tightrope between inflation and employment. High gas prices not only drive inflation, but they can also hurt employment, driving layoffs.
What higher interest rates could mean for the economy
Fed Chair Jerome Powell will hold (10) a press conference on interest rates in late April. If inflation is shown to reach 3.5% this month, as the Cleveland Fed’s data suggests, that may force the Fed to raise the benchmark interest rate.
The prime rate that banks charge would go up in turn, along with interest rates on a host of other financial products.
While the Fed may feel driven to raise rates in order to cool the economy, that cooling has a real impact across the economy. It lowers investment. It lowers consumer demand. That in turn can affect employment.
Powell and his peers are looking at tough decisions, which may come at the end of this month.
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Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
NPR (1); Barron’s (2); Federal Reserve (3); CNN (4); Federal Reserve Bank of New York (5); (6); Federal Reserve (7); CNBC (8); OECD (9); Federal Reserve (10)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
Source: “AOL Money”
