Kevin Warsh was appointed by Donald Trump. Next week, he may have to disappoint him. US inflation came in hotter than expected in August. Core CPI rose 0.3% on the month against expectations of 0.2%, while headline inflation increased 0.4% and reached 3.4% year on year. Markets reacted quickly. A Federal Reserve rate increase next week is now regarded as almost certain, with a second move before year-end increasingly likely. The interesting part is no longer the inflation number. It is what that number forces Warsh to do. Trump selected a Fed chairman he expected to deliver lower borrowing costs. He has repeatedly argued that American interest rates should be among the lowest in the world. Warsh, meanwhile, has spent his first months insisting that inflation must clearly return to 2%. Those two objectives were always going to collide. August may have chosen the moment.

Inflation is not coming from one source. Energy is rising again as the war in Iran disrupts Middle Eastern supply. Oil is above $100. US diesel prices have reached record highs. Tariffs are pushing up the cost of imported goods. Data-centre construction is creating new demand for equipment, electricity and infrastructure. Even underneath those shocks, services inflation remains uncomfortable. Core inflation excluding food and energy is still 2.4% year on year. Services excluding energy and housing rose 0.5% in August. Computer equipment and related products are showing unusually large price increases. This is precisely the kind of inflation the Fed cannot dismiss as one volatile barrel of oil. It is beginning to spread. And that is why Warsh has very little room left.

At Jackson Hole, he said the Fed would have “work to do” unless underlying inflation was moving clearly and quickly enough toward target. The data have now answered him. If he raises rates, Trump will almost certainly dislike it. If he does not, the bond market may dislike it more. That is the trap. The Treasury market has already shown what happens when investors doubt the Fed’s commitment to inflation. Long-term yields rise because investors demand greater compensation for holding dollars for twenty or thirty years. Warsh experienced that in July, when the Fed held rates and investors were unconvinced by the explanation. The 30-year yield moved sharply higher.

The irony is therefore considerable. A rate increase that Trump sees as economically restrictive could ultimately help him. Higher short-term rates would demonstrate that the Fed remains serious about inflation. If that restores credibility, long-term inflation expectations could fall. And if long yields fall with them, mortgage rates and corporate borrowing costs could eventually ease. In other words, Warsh may need to raise the rate Trump watches less closely in order to lower the rates Trump actually cares about. That is not guaranteed.

But doing nothing now carries a larger credibility risk. Markets are already pricing more than an 85% probability of an increase. Major banks have changed their forecasts. Within the Fed itself, three officials already wanted higher rates in July. Warsh would therefore have to fight both the market and part of his own committee to remain on hold. That would make monetary independence harder to defend, not easier.

The political timing makes the decision even more uncomfortable. Americans are already facing higher petrol prices and record diesel costs. Real hourly earnings fell 0.3% year on year in August. The midterm elections are approaching. Households therefore see precisely the combination politicians fear most. Prices rising faster. Purchasing power weakening. Borrowing remaining expensive. Trump wants the Fed to offset that pressure. But cutting rates into renewed inflation would risk producing exactly the opposite result: higher inflation expectations, higher long-term yields and potentially a weaker dollar. Warsh’s first real test, then, is not whether he can forecast inflation correctly. It is whether he can disappoint the man who gave him the job.

Trump himself almost predicted the problem before appointing him. Candidates, he joked in January, tell presidents what they want to hear before being appointed, then suddenly discover reasons to raise rates. Warsh may now be about to prove him right. Not because he has changed his mind. Because inflation has removed most of his choices. Trump chose the Fed chairman. The economy is beginning to choose the Fed policy.