Fed Expected to Raise Interest Rates as Inflation Remains Elevated

The Federal Reserve is expected to raise its benchmark interest rate for the first time in over three years as it battles stubborn inflation fueled by high energy prices.

Some economists predict that Fed officials will raise the federal funds rate by 0.25 percentage points at its Sept. 16 meeting, which would increase the target range to 3.75% to 4%. This comes after inflation remained well above the central bank's 2% annual target in August, with the Consumer Price Index rising at an annual pace of 3.4%.

Interest rate hikes are the Fed's most potent tool for quashing inflation because businesses and consumers respond by pulling back on spending, cooling the economy and tempering price increases as demand slows.