The Federal Reserve looks set to raise interest rates for the first time since 2023 at its September 15-16 meeting, as inflation holds well above target. The move puts the central bank on a collision course with President Trump, who wants rates cut to 1%.
The Federal Reserve appears ready to do something it hasn't done in three years: raise interest rates. Markets are pricing an 85-90% probability that the Fed will lift the federal funds rate by 25 basis points from its current 3.50%-3.75% range at the September 15-16 FOMC meeting.
Inflation is the catalyst. It is running at 3.4% year-over-year, well above the Fed's 2% target, with no sign of cooling on its own. August's CPI report showed core CPI rising 0.3% month-over-month, beating expectations of 0.2%, while core CPI on an annual basis hit 2.4%.
Internal Fed dynamics back the shift. At the July meeting, the Fed held rates on a 3-9 vote, with three officials dissenting in favor of an immediate hike. The June dot plot went further: nine officials signaled support for raising rates. Chair Kevin Warsh, appointed by Trump, has taken a hawkish posture on inflation control.
President Trump has publicly called for interest rates to be slashed to 1% or lower, and has threatened trade restrictions against countries with trade deficits if rates aren't brought down. Yet the gap is enormous: Trump wants cuts to 1%, while the Fed is set to move to a 3.75%-4.00% range.
A hike would end the era of expectations that the Fed's next move would always be a cut. Given that nine FOMC officials already backed higher rates in June, markets should prepare for a sustained tightening cycle rather than a one-off move.
Traders will parse Warsh's post-meeting press conference closely. A single 25-basis-point hike paired with dovish language would land very differently than one accompanied by projections for additional tightening through year-end.
Source: Crypto Briefing
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