Fed Poised to Raise Rates Amid Inflation Fears

The Federal Reserve is poised to raise interest rates in September, with a roughly 90% probability of a 0.25% hike, according to the CME FedWatch tool and a Reuters survey.

This decision will be influenced by Chair Kevin Warsh's stance on inflation, which he has described as 'extremely limited' over the past two years. Warsh emphasized the need for core inflation to decline toward the 2% target at a 'clear and sufficient pace', but current price and energy indicators do not meet that benchmark.

Divisions within the Federal Reserve have deepened since the July meeting, with three regional Fed presidents expected to maintain their positions in favor of a hike. Vice Chair for Supervision Michelle Bowman has indicated that the Middle East conflict could alter her policy judgment, while Governor Michael Barr stated that if inflation deceleration proves insufficient, the Fed should hike decisively.

The rate hike will be accompanied by updated economic projections and the dot plot showing the path of future rates. Market attention is shifting from 'will they hike?' to 'how much further will they tighten?'