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Ongoing3 earlier updates4 days

This story has run 4 times over 4 days, starting Sep 12.

  1. Consumer prices rose 0.4% in August and 3.4% over the year, lifting September Fed rate hike odds above 80%
  2. Trump threatens trade cutoff with some nations unless Fed lowers rates despite 3.4% inflation
  3. Update10-year Treasury yield hit 5.014% Monday, Sept. 14, first time since October 2023
  4. Federal Reserve is expected to raise its benchmark rate a quarter point on Wednesday, Sept. 16, its first hike in three years. — this issue
PBS NEWSHOUR

Federal Reserve is expected to raise its benchmark rate a quarter point on Wednesday, Sept. 16, its first hike in three years.

Inflation and the Fed
Political Guyentist · September 16, 20262 min read

PBS NEWSHOUR

Interest-rate swaps price a 90% probability of an increase from the 3.5%–3.75% target range seven weeks before the midterm elections, defying Donald Trump's demands for cuts.

The decision. The Federal Open Market Committee is poised to lift its policy rate to a 3.75%–4% range with inflation still running above the central bank's 2% target. The move follows a bond selloff that lifted the benchmark 10-year Treasury yield to 5.02%, its highest level since 2007.

The pushback. Donald Trump said on Sunday, Sept. 13 that "the United States is so strong we should be paying the lowest interest rate in the world." Administration officials stated they will respect the process.

What next. Fed Chair Kevin Warsh will hold a news conference on Wednesday, Sept. 16 at 2 p.m. EDT following the policy announcement.

How this committee split narrows from July's five dissentsChristopher Waller and Michelle Bowman are expected to dissent in favor of holding rates steady, pointing to cooling core inflation.3 details
  • Christopher Waller and Michelle Bowman are expected to dissent in favor of holding rates steady, pointing to cooling core inflation.
  • Beth Hammack, Neel Kashkari, and Lorie Logan already backed a quarter-point hike during July's 3-2-7 vote split.
  • Former Chair Jerome Powell remains an active voting governor through January 2028, reinforcing the pro-hike majority.

What we’re less sure of1 of 7 claims

Red take

Raising rates into a supply shock punishes productive enterprise for disruptions it did not cause. Energy costs driven by foreign conflict are real, and they undeniably pinch family budgets. But raising the target range to 3.75%–4% will not drill a single oil well. Instead, as Christopher Waller argues, cooling core inflation proves underlying domestic demand is already moderating. With the 10-year Treasury yield already at 5.02%, adding borrowing costs to home purchases and business investment contracts domestic output while leaving fuel prices entirely untouched. A central bank should not choke domestic growth to discipline global commodity prices.

Blue take

A central bank that blinks at inflation guarantees worse pain down the road. Tighter credit is an unwelcome burden, and Christopher Waller is right that cooling core inflation shows domestic demand has slowed. Yet war-driven energy costs kept inflation above the central bank's 2% target, threatening to turn a temporary spike into permanent price increases. Jerome Powell and the pro-hike majority are correct to push the benchmark rate to a 3.75%–4% range. If the Federal Open Market Committee wavers now, entrenched price expectations will erode household wages and ultimately require far more brutal tightening later.