The Federal Reserve will announce its latest interest-rate decision Wednesday afternoon, with Kalshi traders pricing an 88% chance that the central bank will raise rates for the first time since 2023.
Kalshi's September Fed decision market shows an 88% chance of a 25-basis-point increase, compared with 13% for no change and 1% for an increase of more than 25 basis points.
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Why are rates expected to rise?
Persistently high inflation and elevated energy prices are among the factors supporting expectations for a rate increase.
CBS News reported that the Fed is currently meeting to discuss the matter and is expected to raise interest rates by 0.25 percentage points.
“Inflation remains well above the central bank’s 2% annual target, with the Consumer Price Index rising at an annual pace of 3.4% in August,” CBS News reported.
The Fed can use higher interest rates to curb inflation by making borrowing more expensive, which can reduce consumer and business spending and ease demand-driven price pressures.
“Interest rate hikes are the Fed’s most potent tool for quashing inflation because businesses and consumers respond by pulling back on spending, cooling the economy and tempering price increases as demand slows,” CBS News reported.
Some economists expect additional rate increases if inflation and energy prices remain elevated.
“If everything stays the same and energy prices remain elevated and the economy remains pretty strong, there’s good reason to expect maybe another hike or two beyond this week,” Johnson Investment Counsel chief economist Brandon Zureick told CBS News.
Wednesday's decision comes at Warsh's third meeting as Fed chair since Trump appointed him earlier this year.
Trump pushes for lower rates
President Donald Trump has made his feelings on the issue clear, repeatedly calling on the Fed to lower interest rates.
The Wall Street Journal's Nick Timiraos wrote that President Trump “has said for months that he trusts Warsh to do the right thing, a formulation that has spared the new chairman the treatment faced by his predecessor, Jerome Powell. Raising rates before the midterm elections would test how long that lasts.”
The New York Times' Tony Romm reported that President Trump issued an ultimatum to the Fed in early September on his Truth Social account: “LOWER THE RATE OR I’LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT.”
“If Mr. Trump followed through, the move would imperil a significant amount of U.S. trade, and the consequences could be immense for American families and businesses,” Romm reported.
White House National Economic Council Director Kevin Hassett has taken a less aggressive position, saying the Fed should hold rates steady for now.
“He said Trump ‘100% respects the independence of Kevin Warsh’ and would ‘100% support’ whatever the central bank decides,” Timiraos wrote. “At the same time, he conceded Trump wouldn’t be ‘super happy’ about a rate increase and said the Fed risks its reputation for staying out of politics when it changes rates near an election.”
The takeaway:
Kalshi markets now predict
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