Federal Reserve Expected to Raise Interest Rates Today

Financial markets overwhelmingly expect the Federal Reserve to raise interest rates after its highly anticipated two-day policy meeting on Sept. 16.

The Fed will announce at 2 p.m. whether it will hike the benchmark federal funds rate by a quarter point—the first since July 2023—or hold steady.

Investors are penciling in a 95 percent chance of a rate hike, and a new CNBC Fed Survey suggests a majority of economists and strategists expect the Fed to increase rates.

The White House says it will accept whatever Chairman Kevin Warsh chooses to do.

“We respect whatever he does tomorrow; we’re going to respect the process and understand that he’s doing what he and the committee think is correct,” National Economic Council director Kevin Hassett said on CNBC’s “Squawk Box” on Sept. 15.

But Hassett noted that he would not vote to hike if he were serving on the Federal Open Market Committee, alluding to the slowdown in core inflation.

Stripping out food and energy prices, the annual core inflation rate eased to 2.4 percent last month, from 2.5 percent.

Additionally, the three-month annualized core inflation rate was 2 percent, matching the Fed’s target.

Headline inflation, however, remains firmly above 3 percent.

With oil at $100 and diesel at a record $6, fears are that higher energy prices will filter through the broader economy.

Like the European Central Bank, the Fed would pull the trigger on an interest rate increase to cushion any inflationary blows in the economy.

But upended global energy markets might not equate to higher inflation, Hassett noted.

“I think with Kevin there, that kind of sort of non-economic thinking is a thing of the past,” he said.

“You know, Kevin’s been revising the models that account for the fact that when you have a supply stock, it’s not necessarily inflationary.”

President Donald Trump told reporters at the Irish Open golf tournament this past weekend that the United States should have the lowest interest rate in the world.

“I know more about formulas than anybody, and with the best credit in the world, we make other countries rich,” Trump said. “We don’t want ​to have ‌deficits with nations. We want to have surpluses or at least break-evens.”

His comments come a week after he threatened to end trade with countries that have a trade surplus with the United States unless the Fed cuts interest rates.

Looking ahead to September inflation data, the Cleveland Fed forecasts the 12-month headline consumer inflation rate to hold steady at 3.4 percent for the third consecutive month, and core inflation to remain unchanged at 2.4 percent.

Meanwhile, the central bank’s go-to inflation yardstick—the Personal Consumption Expenditures (PCE) Price Index—is far higher than its CPI counterpart.

The annual PCE Price Index is projected to tick up to 3.9 percent, and core PCE is projected to edge up to 3.5 percent.

Monetary policymakers place a greater emphasis on PCE because it is broader, updated more frequently, and surveys businesses.

“I do believe it’s warranted,” Ted Rossman, principal consumer finance analyst at Money Management International, told The Epoch Times.

While a 25-basis-point increase might not achieve anything immediately—monetary policy generally comes with a lag—the “sentiment behind this is important.”

“[Warsh] keeps talking about how the Federal Open Market Committee is so serious about fighting inflation. I feel like they need to put some teeth behind that,” Rossman said.

“I feel like the Fed needs to do something. We can’t just continue to be stuck in this three, three-and-a-half percent inflation kind of world.”

October and Beyond

While Wall Street’s eyes are on the September outcome, economic observers are considering where monetary policy will head into 2027.

New CME FedWatch data suggest the futures market expects the Fed to pause at the end of October but follow through on another quarter-point hike in December.

Treasury bond yields have been surging over the past several weeks as investors price in tighter monetary policy in response to persistent war-driven inflation.

The 2-year yield—typically more sensitive to Fed policy expectations—has climbed to 4.66 percent, up about 130 basis points from before the war in Iran.

Traders now expect Warsh and his colleagues to implement three rate hikes.

But what markets do next might depend on what Warsh says in his post-meeting press conference, says Lon Erickson, portfolio manager at Thornburg Investment Management.

“If the market gains confidence that the Fed is serious about getting inflation under control, some of the risk premium could come out of longer-term bonds, pushing rates lower,” Erickson said in an emailed note to The Epoch Times.

Warsh has shrugged off data dependency and forward-guidance methodology, so “we don’t have a good sense yet of what that framework is going to look like or how those decisions will be made.”

“I don’t think the market likes that kind of uncertainty,” Erickson added.

Markets will also receive a look into where monetary policymakers think the economy and monetary policy are headed.

The Fed will release its Summary of Economic Projections, a quarterly outlook among officials.

When it was published in June, Warsh abstained from writing down his forecasts.

Owen Evans contributed to this report.