Fed Rate Hike Looms as Inflation Tops Target

The Federal Reserve is expected to raise its short-term interest rate on Wednesday for the first time in three years, aiming to combat rising inflation. The annual inflation rate has reached 3.4 percent in August, exceeding the Fed's 2 percent target.

Higher oil and gas prices, partly due to the war with Iran, have contributed significantly to the increased inflation. Despite President Donald Trump's calls for a rate cut, financial markets predict a 90 percent chance of a quarter-point increase on Wednesday.

The effects of higher interest rates will be felt across various financial products. Borrowing costs will rise, making it more expensive for consumers and businesses to take out loans. Mortgage rates are expected to remain above 6.709 percent through the end of the year, potentially stalling the housing market.

On the other hand, higher interest rates may lead to better returns on high-yield savings accounts, currently offering rates in the 3 percent range. However, credit card rates will likely rise once the Fed moves to raise rates, reaching record highs according to Mark Zandi, a chief economist at Moody's.