Fed expected to raise rates for first time since 2023 as inflation stays above target

Bloomberg reported that the Federal Reserve is expected to raise interest rates Wednesday for the first time since 2023. Markets put the probability of an increase at more than 90% as of Tuesday, NBC News reported, with August inflation running at an annual rate of 3.4%, against the Fed’s 2% target.

Wage growth, meanwhile, slowed to 3.1%, trailing price increases, and August unemployment stood at 4.1%. The expected decision would put Chairman Kevin Warsh at odds with President Donald Trump’s push for lower rates.

Trump has intensified his calls for cuts less than four months into Warsh’s tenure, according to NBC. At Warsh’s swearing-in ceremony in May, the president encouraged him to act independently. By Sept. 4, Trump was arguing that rates should be at 1% or half a percent rather than 4%.

Energy costs and pressure on supply chains complicate the decision. Deutsche Bank analysts said at least two of the three forces occupying the Fed’s attention, energy, tariffs and supply chains, and AI, pointed to greater inflation pressure than at its July meeting, NBC reported. Diesel prices have reached their highest level ever, adding pressure on farmers and truckers.

Raising rates also carries employment risks, Moody’s economist Mark Zandi warned in comments carried by NBC. He argued that tariff and energy shocks should fade without intervention, while a hike would risk layoffs and rising unemployment by pushing growth below potential. His concern centers on the uneven strength of investment: “The challenge is even more complicated because AI-related investment appears to be powering the economy, while the non-AI economy is already struggling,” Zandi said.