On June 11, President Donald Trump appointed Kevin Warsh as the new chair of the Federal Reserve, who had previously advocated for the possibility of rate cuts—a position that endeared him to the president, as Trump has long viewed rate cuts as a primary policy goal. Just weeks into his tenure, Warsh is facing a resurgence of inflation, which could ultimately compel him to diverge from the rate policy favored by Trump and utilize the Fed's core tools to combat inflation. The Consumer Price Index (CPI) released this week showed that the inflation rate has surpassed 4% year-on-year for the first time, reaching a three-year high. About a week after the release of this hot inflation report, Warsh will preside over his first regular policy meeting, which may set the policy tone for the early part of his term. Meanwhile, previously released employment data exceeded expectations, highlighting the resilience of the labor market—another key economic indicator that the Fed monitors. "The critical test for Warsh in the early part of his term will be whether he will implement the rate cuts that Trump is strongly advocating for," said David Wilcox, an economist at Bloomberg Economics and the Peterson Institute for International Economics. "The evolution of the economic situation may put Warsh and his colleagues in a dilemma: refusing to cut rates, and possibly even raising them, thereby defying Trump." The logic for raising rates is clear: an overheating economy and an exceptionally strong job market would increase borrowing costs for various loans, thereby suppressing demand and preventing economic overheating. As a former Fed chair once said, the classic role of the Fed is to "take away the punch bowl when the party is at its height." The question is whether Warsh will press this button, and when he will act. The Fed's meeting next week is almost certain to keep rates unchanged, but investors are increasingly predicting that the central bank will shift to raising rates before the end of the year.