Fed Faces Key Test as Inflation Pressures Mount

The US Federal Reserve is set to hold a key rate-setting meeting this week, with markets expecting policymakers to raise interest rates to combat persistently high inflation. The Fed has held rates steady since January, choosing to wait and gauge the effects of energy price shocks and tariffs on prices.

However, recent data on consumer inflation for August showed it remaining steady at 3.4 percent, which is still above the Fed's long-term two percent target. Market expectations of a 25-basis-point rate hike surged in the wake of the data, with the probability at more than 85 percent according to CME's FedWatch tool.

Central bank chief Kevin Warsh's credibility is on the line as he faces his first real test since taking office. Analysts say Warsh will have to decide whether to raise rates to combat inflation or hold steady in line with what the White House prefers, which could anger President Donald Trump.