Fed poised to raise rates Wednesday

The Federal Reserve is expected to increase its benchmark interest rate by a quarter percentage point at its Wednesday meeting, the first hike since July 2023. Traders are placing odds above 90% on the move.

“CME Group's FedWatch tool showed traders placing odds above 90% on a hike”

Years of rate cuts now reversing

From July 2023 through early 2026, the Fed cut rates six times, totaling 175 basis points. Now inflation readings, a strong labor market, and crude oil above $100 a barrel are pushing the Fed toward tightening.

Warsh's Jackson Hole speech shifts outlook

Fed Chair Kevin Warsh's remarks at the Jackson Hole symposium accelerated the shift toward rate hikes. Just a month earlier, futures markets put the probability of a hike at only 36%.

Committee shows hawkish tilt for months

At the June meeting, all 12 committee members voted to hold rates steady, but nine of 18 officials favored at least one hike before year-end. July minutes showed even more hawkish sentiment, with some officials saying rate increases would likely be warranted if inflation persisted.

“the Fed's commitment to bringing down inflation was "strong, unanimous, and unambiguous."”

Inflation pressures persist despite anchored expectations

Consumer prices rose 4.2 percent year-over-year in May, a three-year high. New York Fed President John Williams said inflation expectations remain well anchored, but price pressures from tariffs and the Iran conflict continue.

Morgan Stanley warns skipping hike risks credibility

Morgan Stanley economists revised their forecast to two hikes this year and warned that skipping Wednesday's move would jeopardize the Fed's credibility. The firm expects a second hike in December.