‘It’s Time for the Fed to Raise Interest Rates’: Ex-Fed President Defies Trump’s Ultimatum

Within a few-hour span on the morning of September 8, the American interest-rate debate fractured. Former Cleveland Fed President Loretta Mester said it is time for the Federal Reserve to raise rates. Bond firm Payden & Rygel chief economist Jeffrey Cleveland warned that tariffs are acting as a tax dragging on growth while adding inflationary pressure, and said “this is reason, I think, for the central bank to hike interest rates this fall.” Economist Mohamed El-Erian said he would vote against a hike, because today’s inflation drivers are largely insensitive to the price of money.

President Trump wants the Fed moving the other way entirely. On September 4, he doubled down on a threat to halt trade with major surplus partners unless the Fed cuts, renewing the demand hours after an August payrolls report that bond traders read as a green light for a hike. The Fed has not moved since December 11, 2025, when it took the upper bound of its target range down to 3.75%. It has held there ever since, through an unemployment rate sitting at 4.1% in both July and August.

Why the hawks are getting loud now

The case rests on the Fed’s own preferred gauge. Core Personal Consumption Expenditures climbed to 130.66 in July, its highest reading in at least a year. Headline CPI has been choppier, which is part of why this argument is a debate rather than a consensus.

Canada’s retaliatory tariffs took effect September 8, ranging from 15% to 50% on roughly $20 billion of American exports, matching Washington dollar for dollar. El-Erian’s counter is that a Fed hike cannot repeal a tariff, cannot pump more crude out of the ground, and cannot force chipmakers to build capacity faster. Raising rates into a supply shock would slow the parts of the economy that are working while doing little to the parts that are not.

That argument is losing inside the building. Fed Chairman Kevin Warsh said in late August that the Fed may have “work to do” on inflation, a line markets read as an endorsement of a September move, and the White House has spent the days since publicly pressuring him not to make it. The curve reflects the shift. The 10-year Treasury sat 0.41 percentage points above the 2-year on September 8. That is still a normal-shaped curve, but flatter than it ran in February, when the spread was 0.74.

What a hike would mean at the kitchen table

Borrowers feel it in two separate places, and the difference matters. Anyone shopping for a home is dealing with the bond market rather than the Fed directly, since a 30-year fixed mortgage prices off long yields. Households carrying revolving debt are the ones exposed to the Fed itself. An increase in the target range pulls the prime rate up with it and reprices variable-rate balances within a billing cycle. The average credit card APR is already near 21%.

Savers get the mirror image, and it’s a thin one. The FDIC national average yield on a 12-month certificate of deposit was 1.71% in August, up modestly since spring but still a rounding error against inflation. The signal to watch is the September Federal Open Market Committee meeting. If Mester and Jeffrey Cleveland are right, borrowers pay. If El-Erian is right, the Fed holds and the tariff bill lands anyway.

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