Fed Decision Hinges on Inflation Outlook

The Federal Reserve's decision on interest rates is expected to be a close call today. A rate hike is still possible, despite a hold being favored by some economists. Bank of America US economist Aditya Bhave notes that Fed Chairman Kevin Warsh has enough votes either way.

Traders have placed the odds of a rate hold at 64.2% as of Wednesday morning, down from a few percentage points earlier in the day. However, there are valid arguments for both hiking and holding interest rates.

The decision will ultimately come down to how Federal Open Market Committee members view inflation. Some committee members, including Beth M. Hammack, Neel Kashkari, and Lorie K. Logan, have expressed support for a rate hike. They voted against the current target range for the federal funds rate by 1/4 percentage point at the last meeting.

The Federal Reserve's dual mandate includes maintaining price stability, which has been impacted by elevated inflation rates due to supply shocks in certain sectors, including energy.