Fed Boxed Into a Corner: Will Interest Rates Rise?

The Federal Reserve is facing a difficult decision next week regarding interest rates. A Reuters poll found that about 70% of economists expect the federal funds rate to remain in the 3.50%-3.75% range, down from 90% in August.

However, the recent producer price index (PPI) and consumer price index (CPI) reports showed higher-than-expected inflation figures. The PPI report was driven by higher fuel and commodity prices, while the CPI report saw core inflation rise 0.3%, exceeding market expectations.

Louis Navellier believes that the Fed has no choice but to raise interest rates due to rising oil prices and other central banks increasing rates. He notes that a phenomenal CPI report would be needed for the Fed not to hike rates, which did not occur.

On the other hand, Luke Lango thinks that inflation could cool considerably if oil prices retreat below $90 in the coming weeks or months. He points out that annualized core inflation on a three-month basis was just 2%, and food inflation was flat.