Fed Boxes Itself into Rate Hike Corner

The Federal Reserve is likely to raise interest rates next week following a hot inflation report. The August inflation data showed that underlying inflation picked up last month, with the core Consumer Price Index (CPI) increasing by 0.3% and running at a 2% annualized rate over the past three months.

This development has bolstered the case for a rate hike, which would put Fed Chairman Kevin Warsh on a collision course with President Trump. The White House has threatened to escalate its trade war if the Fed does not cut rates.

Warsh will face pressure to communicate whether the rate hike is a one-off adjustment or the start of a tightening campaign. He has been determined to avoid providing forward guidance, which could put the Fed's credibility at risk and repeat the bond selloff that occurred after the last policy meeting.