The Federal Reserve's rate-setting committee meets Tuesday and Wednesday with futures traders pricing a better than 92% chance of a quarter-point hike, a sharp reversal from July's 9-3 vote to hold. Chair Kevin Warsh must now count votes on a committee split between officials who see August's inflation pickup as temporary and those who fear it is taking deeper root, while President Trump keeps pressing publicly for lower rates.
Federal Reserve Chairman Kevin Warsh faces a tricky head count this week as policymakers decide both the immediate and future path of interest rates. Futures traders were pricing in a better than 92% probability of a rate increase at Wednesday's meeting as of Monday afternoon, along with a more than 75% chance the FOMC follows up with another move in December, according to the CME Group's FedWatch gauge. The federal funds rate currently sits in a range of 3.50% to 3.75%. The effective rate stands at 3.63%.
Three dissenters, four converts needed
The move follows the Fed's 9-3 vote to hold rates in July, when regional presidents Lorie Logan, Beth Hammack and Neel Kashkari were the only members pushing for a hike. For a hike to pass this week, four other members who backed a hold in July would need to switch their votes. Warsh is largely expected to join the hiking camp given his Jackson Hole remarks last month, and Governor Lisa Cook has said she is prepared to act on inflation. Goldman Sachs economist David Mericle wrote that the firm does not see a strong economic case for raising rates but shifted its own call to a hike because it expects market expectations to force the Fed's hand.
Waller counsels patience
Governor Christopher Waller, seen as the most-watched vote, backed another hold in remarks on Sept. 3. "What's the cost of waiting one meeting?" he said, arguing a quarter-point hike now would not bring inflation down to the Fed's 2% target. That followed August's consumer price index, which showed headline inflation running at 3.4% while the core rate eased slightly to 2.4%. New York Fed President John Williams has also said a wait-and-see approach seems to make sense, while Governor Michael Barr has expressed concern that temporary inflation could take deeper hold and said he would be open to a hike, though not set on one.
Trump keeps up the pressure
President Trump said no country should have lower interest rates than the United States, speaking to reporters in Ireland days before the meeting. He said he did not know whether the Fed would raise rates this week but argued the U.S. should pay the world's lowest rate regardless of the data. National Economic Council Director Kevin Hassett said Trump would defend Warsh's independence no matter the outcome, though he acknowledged Trump would not be pleased if the Fed raises rates. The vote margin, expected Wednesday, will show how far the divide runs and how firmly Warsh's leadership is taking hold inside the Fed.
Sources: CNBC, Investing.com, Crypto Briefing
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