Fed Faces Key Test as Rate Hike Probable Amid Soaring Inflation
The US Federal Reserve is set to meet this week, and markets are expecting policymakers to raise interest rates amid persistently elevated inflation. The Fed has held rates steady since January, but several policymakers have hinted that if inflation doesn't slow down, they will need to act.
New data on consumer inflation for August showed it remaining at 3.4%, well above the Fed's long-term target of 2%. Market expectations of a 25-basis-point rate hike surged in the wake of the data, with over 85% probability according to CME's FedWatch tool.
Analysts say that this is a crucial test for Fed Chair Kevin Warsh, who was appointed by President Donald Trump. If he raises rates, it would increase borrowing costs and potentially slow down economic activity, but if he holds steady, it could anger the White House.