Fed Stays the Course, But Rate Hike Looms Amid Strong Economic Data
The Federal Reserve is expected to keep interest rates steady at its upcoming meeting, according to a majority of economists polled by Reuters. The September 15-16 meeting will mark the second time this year that the Fed has defied market expectations for a series of rate hikes.
About 70% of economists in the poll expect the federal funds rate to remain in the 3.50%-3.75% range next week, down from 90% in August. The remaining 30% predict a quarter-percentage-point increase, which would be the first since July 2023.
While the Fed's policy-setting Federal Open Market Committee was sharply divided at its last meeting, with three members opting for a rate increase, economists are now split on whether rates will remain steady or rise. Eli Nir, U.S. economist at TD Securities, noted that if there's an upside surprise in inflation data, the Fed may start a hiking cycle.
The persistence of above-target inflation is putting pressure on President Donald Trump and his fellow Republicans as they try to keep control of Congress in the midterm elections in November. Economists forecast annual PCE inflation at 3.5% this year and 2.4% in 2027, unchanged from last month's estimates.