Add the butter and flour to a small sauce pot. Heat and whisk the butter and flour together until they become bubbly and foamy. Continue to cook and whisk the bubbly mixture for about 30 seconds.
Whisk the milk into the flour and butter mixture. Turn the heat up slightly and allow the milk to come to a simmer while whisking. When it reaches a simmer, the mixture will thicken. Once it's thick enough to coat a spoon, turn off the heat. Stir in the shredded cheddar, one handful at a time, until melted into the sauce. If needed,
place the pot over a low flame to help the cheese melt. Once all the cheese is melted into the sauce, stir in the salt and chili powder. Taste and adjust the seasoning as needed. If the sauce becomes too thick, simply whisk in an additional splash of milk.