Fed meeting live updates: Fed interest rate decision looms, with traders anticipating first hike in 3 years

Primary Journalistic Dispatch & Direct Reporting

The Federal Reserve's September policy meeting kicked off Tuesday morning, and markets overwhelmingly expect the Fed to raise interest rates by 25 basis points on Wednesday amid persistently high inflation.

Such a move would mark the Fed's first increase in the fed funds rate since 2023, when the Jerome Powell-led central bank concluded its post-pandemic hiking campaign. However, inflation has now remained above the Fed's 2% target for more than five years, with the war in the Middle East serving as the latest driver of higher prices.

As Fed Chairman Kevin Warsh said in his Jackson Hole Symposium speech in August, "We have work to do."

In-Depth Developments & Factual Context

Still, a hold isn't entirely off the table - even as traders price in a 92% chance of a Fed rate hike, according to CME Group's FedWatch tool . Federal Reserve Chairman Kevin Warsh has been adamant about not providing markets with forward guidance on interest rate decisions, preferring that officials have a "good family fight" over the data at FOMC meetings.

In addition to the intrigue over whether the Fed will hike rates, markets will closely scrutinize the Fed's Summary of Economic Projections, the so-called dot plot , for clues about monetary policy in the next few years.

The Fed's interest rate decision today could be the beginning of a new rate-hiking cycle, Bank of America contends.

Industry Impact & Strategic Analysis

BofA Securities senior US economist Stephen Juneau told Yahoo Finance on Tuesday that he expects the Fed to raise rates on Wednesday, followed by additional 25 basis point rate hikes in October and December.

"They're basically going to undo what they did last year," Juneau said. "Last year was about taking out insurance cuts for the weakness they were seeing on the labor market. This year is about taking out insurance for the upside risk to inflation and reversing those. And then they'll wait and see how the inflation data evolves."

The market sees a chance of several more rate hikes ahead this year. Traders are pricing in 25% odds of Juneau's base case of three rate hikes by December, according to CME FedWatch. There's roughly a 50% chance of two rate hikes, fed fund futures indicate, and a 22% probability of the Fed hiking by just 25 basis points this year priced in.

Forward Outlook & Market Perspective

Wall Street is largely expecting the Federal Reserve to raise interest rates this afternoon for the first time in more than three years.

Investors are betting on a nearly 93% chance the central bank raises rates by a quarter point to a new range of 3.75%-4%.

"The case for a rate hike is strong," said Matt Luzzetti, chief US economist for Deutsche Bank, pointing to solid economic growth, a rebound in the job market, and inflation that's shown limited evidence of falling back toward the Fed's 2% inflation goal.

Inflation readings over the summer have shown some progress, but still suggest prices are stubbornly sticky, as oil climbs back over $100 a barrel a mid renewed tensions in the Middle East.

"Forward-looking indicators, including from energy prices, suggest the inflation overshoot is likely to persist for some time," he said. "Against this backdrop, it is not clear the Fed is sufficiently restrictive."

Options market pricing suggests that today's Fed decision will be "relatively business as normal," according to RBC Capital Markets head of derivatives strategy Amy Wu Silverman.

Reporting synthesized and verified under Nexvoro.tech editorial guidelines. Full primary records referenced via Yahoo Finance.