Financial markets are indicating a high probability of a Federal Reserve interest rate hike on Wednesday, with bond traders assigning a more than 90% chance that Chairman Kevin Warsh and his colleagues will increase the benchmark policy rate by a quarter point from its current 3.5%-3.75% range. This translates to roughly 23 basis points of tightening already priced in by interest-rate swaps tied to Fed meeting dates.
The expectation for a rate hike is bolstered by recent inflation data, particularly the August increase in core CPI, which has eroded confidence in the disinflation narrative. Analysts anticipate that policymaker forecasts will signal at least one additional rate increase this year, following Wednesday's expected move.
Economists polled by Reuters also largely predict a rate hike on Wednesday, with further increases likely. The general sentiment among experts, including BlackRock's Global Fixed Income CIO Rick Rieder, is that the Fed is poised to act. The current environment, marked by elevated inflation and $100-a-barrel oil prices, presents a strong case for the Fed to raise rates, making it difficult for the Federal Open Market Committee (FOMC) to avoid such a decision.
