Fed Likely to Hike Rates This Week Amid Rising Inflation Concerns

Major brokerages are now expecting the Federal Reserve to raise interest rates this week in response to stronger-than-expected U.S. inflation data. Goldman Sachs, J.P. Morgan, HSBC, and Deutsche Bank forecast a quarter-point increase at the September 15-16 meeting.

The shift in expectations has come rapidly, with several major banks expecting the Fed to keep borrowing costs higher for longer as policymakers try to return inflation to their 2% target.

HSBC economist Ryan Wang said that 'the lack of inflation progress has tipped the balance' and supports a September rate increase. J.P. Morgan economists led by Michael Feroli also concluded that the latest data make a rate hike at next week's FOMC meeting more likely than not.

The central issue for policymakers is no longer whether inflation is declining, but whether it is declining at a pace consistent with a sustainable return to the Fed's 2% target. The August inflation reports have complicated that assessment, suggesting that underlying price pressures may be proving more persistent than expected.