Key facts
- Federal Reserve Chairman Kevin Warsh is expected to raise interest rates.
- Financial markets are betting heavily on a quarter-percentage-point rate hike.
- US consumer price inflation, excluding energy and food, rose 0.3% last month.
- Oil prices have surpassed $100 a barrel.
- US President Donald Trump expects lower interest rates.
- The Fed will announce its policy decision on Wednesday at 1800 GMT.
Federal Reserve Chairman Kevin Warsh is under pressure to raise interest rates, with financial markets heavily anticipating a quarter-percentage-point hike to a range of 3.75-4 per cent. This move, coupled with potential further tightening signaled by policymakers, would be the first rate increase under Warsh's tenure as head of the Fed's rate-setting committee. Elevated inflation, with consumer prices excluding energy and food rising 0.3% last month, and oil prices surging above $100 a barrel, are key drivers for this expected action. The decision comes ahead of the November elections, raising questions about how US President Donald Trump, who had expected lower rates, might react. Warsh faces the challenge of communicating the Fed's policy path without providing explicit forward guidance, a stance he has maintained. Some analysts expect another increase later this year, which would necessitate further clarity from the chairman. Fed Governor Christopher Waller and New York Fed President John Williams had previously expressed caution, awaiting further disinflationary signals. However, recent hotter-than-expected inflation data may override their previous stance. Three regional Fed bank presidents—Beth Hammack of Cleveland, Lorie Logan of Dallas, and Neel Kashkari of Minneapolis—had already dissented in July, favoring a rate hike. JPMorgan economist Michael Feroli projects a rate increase, viewing it as a closer call than the market currently prices. Scotiabank economist Derek Holt believes a hike is likely regardless of whether it's the right move, citing Warsh's deference to market pricing.