Fed Set to Hike Rates for First Time in Three Years as Inflation Concerns Linger

The Federal Reserve is likely to raise interest rates for the first time in three years at its meeting tomorrow, according to Natixis. Economists Christopher Hodge and Selin Aker predict that Fed Chair Kevin Warsh will announce a rate hike of 0.25% to encourage disinflation.

Warsh has signaled his dissatisfaction with the pace of disinflation, and the recent CPI data provides the impetus for a hike. The economists expect minimal dissent among committee members, although some regional presidents may vote in favor of a larger increase.

The Summary of Economic Projections is expected to show few material changes, but Hodge and Aker predict that the end-of-year policy projection will be raised to 4.1%, suggesting another hike by year-end.

Warsh's press conference will likely emphasize that this decision does not pre-commit the Fed to future actions, giving him flexibility to respond to shocks. The economists believe that inflation data in the coming months will determine whether further rate hikes are necessary, and it is possible that this meeting could be a 'one-and-done' for the cycle.