Fed Expected to Defy Trump with Rate Hike Amid Soaring Inflation

The Federal Reserve is expected to raise its benchmark interest rate on Wednesday for the first time in three years, despite President Donald Trump's demands for a cut. The move would put the central bank at odds with the president's support for lower rates.

Fed Chair Kevin Warsh has argued that the Fed has not yet achieved its goal of putting inflation in check, and a rate hike is necessary to fight stubbornly high inflation, currently around 3.6%. Most analysts and economists expect a hike after Warsh's speech at the Fed's annual conference in Jackson Hole, Wyoming.

The Iran war and surging investment in AI data centers have contributed to higher inflation, with core inflation, excluding food and energy, picking up in August from the previous month. A rate increase could raise other questions, such as how many hikes will be implemented and their effectiveness in reducing inflation, which is largely driven by higher oil prices.

Financial markets expect Warsh and the central bank to brush off warnings from Trump's top economic adviser, Kevin Hassett, who suggested that the Fed shouldn't hike so close to the midterms. Traders now see a 90% chance the Fed will hike Wednesday, according to futures prices.