Fed Set to Hike Rates This Week Amid High Probability and Economic Uncertainty

Markets are bracing for a significant event this week: a rate hike by the Federal Reserve. The consensus is that officials will increase borrowing costs, with a 92% chance of a 25 basis point hike, up from about 70% prior to last week's consumer inflation report.

The Fed's decision will be a major test for Kevin Warsh, who will deliver his remarks following the rate decision. His comments could determine what markets think about his ability to steer the central bank through overlapping macroeconomic challenges facing the US.

Pricing in a hike, Deutsche Bank chief US economist Matthew Luzzetti expects the Fed to deliver a 25bp rate hike at the September FOMC meeting. JPMorgan's Michael Feroli also predicts a December rate increase, stating that 'the Chair's repeated stern warnings on inflation intolerance risk institutional credibility absent some action to back it up.'

A rate hike could raise borrowing costs of mortgages, auto loans, and credit card debt for consumers. Savers would see higher returns for their high-yield savings accounts.

However, a hike could also be bad news for job seekers, as companies may tighten their belts and slow down hiring and promotion cycles due to higher borrowing costs.