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Stubborn inflation raises prospect of Fed rate hike
Developing
In Short: Stubborn inflation and rising Treasury yields have raised the prospect of a Federal Reserve rate hike, according to reports. The European Central Bank recently raised its rates, citing persistent inflationary pressures from the war.
Stubborn inflation and rising Treasury yields have raised the prospect of a Federal Reserve rate hike, according to reports. The European Central Bank recently raised its rates, citing persistent inflationary pressures from the war. With the upcoming Federal Reserve meeting, economists predict a 25 basis point increase, which could signal a more challenging economic period.
The Federal Reserve will be very concerned that inflation could become deeply entrenched, making it more persistent than expected, according to Northeastern Global News. Despite President Trump's threats to halt trade, Fed Chair Kevin Warsh may be willing to risk his position to address inflation. Historical data from CME Group shows the Fed is less likely to adjust rates before a midterm election, but has acted in serious economic crises or high inflation scenarios.
In August, employers added 162,000 jobs, and the unemployment rate held steady at 4.1%, according to the Bureau of Labor Statistics. Despite positive signs in the labor market, inflation remained elevated at 3.4%, according to the latest CPI report. A rate hike could mark a significant shift in the Fed's approach to an economy facing persistent price increases and a resilient labor market.
The administration, led by Treasury Secretary Scott Bessent, has characterized the rise in inflation as transitory and linked to the war with Iran. However, the latest data suggests that inflation is more persistent, raising the likelihood of a rate hike in the coming weeks.
What's still developing
- The study noted that the Fed is less likely to act on monetary policy before a midterm election, but has made moves “on occasion” when confronted with serious economic crises or concerning inflation levels.
- Jai Kedia, a research fellow at the Cato Institute’s Center for Monetary and Financial Alternatives, a research organization within the Washington, D.C.-based think tank, said he thinks a rate hike is the likely outcome given positive signs in the labor market and stubbornly high inflation.
Sources
- Northeastern Global Newslink