Fed Holds Rates Steady as Inflation and Oil Prices Weigh on Decision

The Federal Reserve is expected to hold interest rates steady at its upcoming meeting on September 15-16, according to a Reuters poll of economists. About 70% of economists surveyed by Reuters, 65 out of 93, expect the federal funds rate to remain at 3.50%-3.75%. This is down from 90% in the August poll, indicating that expectations for a rate increase have risen substantially over the past month.

Looking through year-end, 52 of 93 economists expect no change, while the remainder expect at least one increase. Inflation data will play a crucial role in the Fed's decision, and a strong upside surprise could prompt a rate hike. The August Consumer Price Index is expected to show prices increased 0.4% from July, with annual inflation forecast to remain at 3.4%.

Some economists believe that Chairman Kevin Warsh's hawkish comments at Jackson Hole mean that a rate increase is probable this month unless the upcoming CPI release brings a substantial downside surprise. Markets have priced in two rate increases by March amid persistent inflation and a renewed rise in oil prices.