Fed Rate Hike Expected Despite Trump's Calls for Lower Borrowing Costs

The Federal Reserve is expected to raise its benchmark interest rate by a quarter of a percentage point on Wednesday, marking the first increase since July 2023. The move would put Fed Chair Kevin Warsh in direct conflict with President Donald Trump.

Futures traders have assigned better than a 92% chance to a rate increase at this week's Federal Open Market Committee meeting. A move would lift the federal funds rate from its current target range of 3.5% to 3.75%, according to CNBC.

The Fed has held rates steady across its past several meetings, despite inflation running above the central bank's 2% target. August's consumer price index showed headline inflation at 3.4%, with core inflation, which excludes food and energy, at 2.4%. Warsh indicated at last month's annual conference in Jackson Hole that the Fed would move on rates absent more convincing evidence that inflation was retreating toward its goal.

Failing to follow through on those comments now would damage Warsh's credibility, former New York Fed President Bill Dudley told CNBC. 'With the market priced this way, it would be shocking if he came in and did nothing,' Dudley said. A rate increase would directly contradict Trump, who has pressed the Fed to lower borrowing costs in the weeks before midterm elections.