Economists expect the Federal Reserve to raise its benchmark interest rate at its Sept. 16 meeting, marking the first such increase in more than three years. The anticipated move follows a rise in the Consumer Price Index, which reached an annual pace of 3.4% in August, exceeding the central bank's 2% target. Financial markets, tracked by CME FedWatch, currently estimate a 90% probability of a 0.25 percentage-point increase.
The potential policy shift comes as the Federal Reserve attempts to manage inflation influenced by high energy prices and the ongoing Iran war. Between 2022 and 2023, the Fed implemented 11 rate hikes to combat inflation that peaked at 9.1%, eventually reaching a target range of 5.25% to 5.5%. Since July 2023, the central bank has either held rates steady or lowered them.
If the Fed approves the hike, the federal funds rate—the interest rate banks charge each other for short-term loans—would rise to a range of 3.75% to 4%. Fed Chairman Kevin Warsh is scheduled to hold a press conference at 2:30 p.m. ET following the 2 p.m. announcement. The Federal Open Market Committee (FOMC) will also release updated quarterly forecasts for economic growth and inflation.
The anticipated rate hike affects U.S. consumers carrying debt, particularly those with credit cards. Matt Schulz, chief consumer finance analyst at LendingTree, stated that cardholders should expect their annual percentage rates (APR) to increase by a quarter-point within two months of the Fed's decision. While this specific 0.25 percentage-point move may add roughly $1 to $2 to a monthly credit card bill, the increase applies to both existing balances and new purchases. For savers, higher rates typically lead to increased returns on high-yield savings accounts and certificates of deposit (CDs).
The scale of the impact is tied to broader energy costs, as diesel prices reached a record $6.27 a gallon and gasoline rose to $4.33 a gallon by Tuesday. These costs, alongside oil prices exceeding $100 per barrel, have led strategists like Seema Shah of Principal Asset Management to suggest that a "one-and-done" hike approach is unlikely. While a 0.25 percentage-point hike is the immediate expectation, some economists forecast one or two additional increases in the coming months if energy prices remain elevated and the economy stays strong.
The decision also influences the housing and investment markets. While short-term borrowing costs rise, the impact on long-term mortgage rates is less direct, as they often track 10-year Treasury yields. Investors have already factored the expected hike into market prices, potentially limiting the kind of volatility seen during the 2022 tightening cycle when the S&P 500 fell 18%. Following the Sept. 16 announcement, the Fed's future path will depend on whether inflationary pressures from trade disruptions and energy costs subside or persist.