Fed Poised to Raise Rates Amid Persistent Inflation, Iran War Pressure

The Federal Reserve is widely expected to raise its benchmark interest rate by a quarter percentage point on Wednesday, the first increase since 2023, as sticky inflation and surging energy prices force the central bank's hand. Traders see a 93% probability of a hike, according to CME FedWatch, which would lift the target range to 3.75%-4%.

Consumer prices rose 3.4% in the year through August, unchanged from July, while core inflation eased only slightly to 2.4%. The data, released Friday, convinced investors the Fed cannot stay idle. Brent crude has topped $100 a barrel for the first time since July, driven by the war between U.S.-Israeli forces and Iran that began in late February.

“This inflation data, together with recent employment data, sharpens the conflict between the Fed's price-stability mandate and the dictate to keep Trump happy.”

The 10-year Treasury yield touched its highest level since 2007 on Tuesday, reflecting a global bond selloff that has raised borrowing costs for households, businesses, and the government. Analysts warn that if the Fed holds rates steady, the selloff could accelerate as investors question the central bank's commitment to containing inflation.

Fed Chair Kevin Warsh faces political pressure from President Donald Trump, who has repeatedly demanded lower rates ahead of November's midterm elections. Cornell economist Eswar Prasad said the inflation data "sharpens the conflict between the Fed's price-stability mandate and the dictate to keep Trump happy."

Former Fed economist Claudia Sahm called a hike "very likely" but cautioned it is "not an easy measure or a miracle solution." She added that a decision to hold would require a convincing explanation or risk market turbulence.