Federal Reserve Chairman Kevin Warsh faces intense pressure to raise interest rates at next week’s policy meeting after a highly anticipated inflation report showed U.S. consumer prices marched higher last month.

Underlying inflation rose more than expected in August, as the core consumer price index, which excludes food and energy costs, increased 0.3% from a month earlier, according to Bureau of Labor Statistics data out Friday. The report bolsters the argument already embraced by several policymakers that the Fed must act to curb price pressures after more than five years of elevated inflation.

“For the Fed, it is time to put up or shut up,” Omair Sharif, president and founder of Inflation Insights LLC, wrote in a note to clients.

In the wake of the fresh numbers, investors made their expectations clear. The probability of a hike at the Fed’s Sept. 15-16 gathering, based on federal funds futures, jumped to above 85%, up from about 70% on Thursday. They also expected a second rate hike by December.

Before the inflation report, expectations for a Fed hike weren’t nearly as high among economists who watch the central bank. But following the release, several — including those at TD Bank and JPMorgan Chase & Co. — changed their call in anticipation of an increase.

“This number just solidifies that shifting of the center of gravity toward hiking,” said Diane Swonk, chief economist at KPMG. “Now the question is not whether they hike, it’s how much they need to hike to contain this inflation.”

Much of the rise in underlying inflation in August was driven by a record increase in wireless telephone services, according to data compiled by Bloomberg. While that might be viewed as having a one-time impact on inflation, several analysts said the Fed couldn’t afford to keep holding rates on the promise of future improvements.

Investors are also likely taking into account Warsh’s own words from an Aug. 28 speech in Jackson Hole, Wyoming. In it, he said underlying inflation had not improved meaningfully, adding that policymakers would have “work to do” if they didn’t receive new assurances that inflation was on a path to the central bank’s 2% target.

“You cannot give a speech like you did at Jackson Hole and not support a rate hike at the next meeting,” Sharif said.

Support building

Support for a rate hike had been building inside the central bank even as officials held their benchmark steady through five meetings this year. Three officials dissented in July in favor of a quarter-point increase at that meeting, and two non-voters said they also would have backed a hike.

An opposing group of policymakers has said they expected underlying inflation would cool in the coming months, though some of them acknowledged they’d need to see more evidence of that to support a continued hold.

A decision to lift borrowing costs next week could lend credibility to Warsh’s anti-inflation rhetoric and help repair damage from his July 29 press conference, when he failed to explain — at least to investors’ satisfaction — why the Fed held rates steady that day.

“A Fed rate hike next week now looks like a go,” economists for Evercore ISI, led by Krishna Guha, wrote in a note to clients Friday. “We think Chair Warsh will judge that the data is not quite good enough to look through the additional pressure from oil and retain credibility shaken by his poor July press conference, and he will probably be able to carry a decent majority of voters.”

But a rate hike could also draw the ire of President Donald Trump, who appointed Warsh and has not stopped calling for lower interest rates. Last week, he threatened to cut off trade with certain countries if the Fed didn’t cut rates.

“I would guess that if the Fed makes a big move, that the president will have something to say about it,” Kevin Hassett, director of the White House’s National Economic Council, said Friday during an interview with Michael McKee on Bloomberg TV.

If Trump does turn on Warsh, whom he continued to refer to last week as the Fed’s “great new leader,” he might end up with more than one rate hike to criticize.

With conflict in Iran continuing to fester, oil prices have surged again. Brent crude reached as high as $109 a barrel on Thursday. Moreover, economists have pointed out that some of the key drivers pushing inflation higher, like the buildout of data centers, are unlikely to abate soon.

Consumers also appeared worried. The University of Michigan’s latest survey showed one-year inflation expectations jumped in early September to 4.6% from 4% a month earlier. And for the first time since 2023, a majority of consumers expect interest rates to rise over the next 12 months.

Some Fed officials have argued the current rate setting isn’t restraining demand as much as previously thought. And while wages don’t appear to be adding to inflation, the unemployment rate is low and widely judged as stable.

All that could support the case for the Fed to undo the 75 basis points in rate cuts it made last year when there were greater concerns about a potential slowdown in the labor market.

In a Bloomberg survey of subscribers conducted Sept. 8-10, most respondents said that if the Fed lifts rates next week, it’s likely to be a one- or two-hike adjustment. But some economists on Friday said they now expect more.

“The Fed needs to remove the three rate cuts that they implemented in late 2025 and slow an economy that is likely to grow well above trend in the current quarter,” Joseph Brusuelas, chief economist at RSM US LLP, wrote in a note to clients.

(With assistance from Maria Eloisa Capurro, Enda Curran, Catarina Saraiva, Andrew Ackerman and Kerry Benn.)

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