Fed Set to Hike Interest Rates Amid Stubborn Inflation

The Federal Reserve is set to hold its closely watched monetary policy meeting this week, and the market expects the central bank to hike interest rates amid concerns about stubborn inflation.

Policymakers have held interest rates steady at all five meetings held by the Federal Open Market Committee (FOMC) this year, with the benchmark federal funds rate sitting at a target range of 3.5% to 3.75%. Persistent inflation above the Fed's 2% long-run target has prompted concern among policymakers and shifted the market's outlook.

The Fed's preferred inflation gauge, the personal consumption expenditures (PCE) index, was up 3.7% on an annual basis in July, while core PCE, which excludes volatile food and energy prices, was up 3.3%. Another closely watched inflation measure, the consumer price index (CPI), was up 3.4% annually in August, while core CPI was up 2.4%.

The anticipated rate hike comes as yields on U.S. Treasurys are rising, reaching the highest level in years amid competition in the fixed income market from foreign sovereign debt and corporate debt issuance. The yield on the benchmark 10-year Treasury note is hovering around 5%, the highest level it's been at since 2007.