Fed Set To Raise Rates For First Time In Three Years As Inflation Fight Resumes

Markets widely expect the Federal Reserve to raise interest rates by 25 basis points on Wednesday, marking its first hike since 2023, as inflation remains stuck above target for a fifth straight year with Middle East conflict adding fresh pressure on prices.

Fed Chair Signals More Work Ahead

Fed Chair Kevin Warsh said in August that the central bank still has work to do on inflation, though he has avoided giving markets clear forward guidance, preferring officials debate the data openly at meetings. Traders currently price in roughly a 92% chance of a hike, based on CME Group data, though some Fed watchers argue the odds may be overstated given recent comments from committee members suggesting hesitation.

Economists Split On Whether A Hike Makes Sense

Moody’s Analytics chief economist Mark Zandi called a hike a potential serious policy mistake, arguing current inflation stems largely from tariffs and energy costs that rate increases can’t fix, and warned that tightening further risks triggering layoffs. Another investment strategist warned a hike could hit lower-income consumers hardest, raising borrowing costs without addressing the actual causes of inflation. Meanwhile, the White House said it will support Fed Chair Warsh’s decision either way, emphasizing his independence from political pressure. Markets will also watch the Fed’s updated economic projections for signals on the path ahead.