Fed Keeps Rates Steady, but Hike Expectations Rise

The Federal Reserve is expected to keep interest rates steady at its September 15-16 meeting and for the rest of this year, according to a Reuters poll. A majority of economists in the poll, about 70%, expect the federal funds rate to remain in the 3.50%-3.75% range next week.

This reading is down from 90% in August, indicating a growing number of analysts now expect at least one hike. Among primary dealers, the split is closer on whether or not the Fed will raise rates this year, with half expecting rates to remain on hold and the other half predicting at least one hike.

Economic data have mostly come in strong in recent weeks, but several economists said the Consumer Price Index data for August, due to be released on Friday, will be important for them to solidify their thinking on what comes next for rates. Inflation remains above the Fed's 2% target and has stayed there for more than five years.

A separate Reuters poll predicted a 0.4% month-on-month rise in inflation after a 0.1% increase in July, with inflation expected to hold steady at 3.4% on a year-over-year basis. Economists now forecast annual PCE inflation at 3.5% this year and 2.4% in 2027.