▲ The New York Stock Exchange (NYSE) in New York, USA
As expectations grow that the U.S. Federal Reserve (Fed) could resume raising interest rates for the first time in about three years, forecasts suggest that Fed Chair Kevin Warsh may clash with President Donald Trump, who has repeatedly demanded rate cuts.
According to the CME FedWatch Tool on the 14th (local time), the fed funds futures market priced in a 92 percent probability that the Fed will raise its benchmark interest rate by 0.25 percentage points at the Federal Open Market Committee (FOMC) meeting on September 15 to 16.
This is a sharp increase from around 70 percent before the release of recent inflation data.
The probability that the benchmark interest rate will remain higher than current levels through December stood at 98.7 percent.
If the Fed raises the benchmark rate by 0.25 percentage points at this meeting, the target range for the policy rate will rise from the current 3.50 to 3.75 percent to 3.75 to 4.00 percent.
Should the Fed hike rates, it would mark the first rate increase in 3 years and 2 months since July 2023, shifting away from the prolonged freeze following three consecutive rate cuts in the second half of last year back toward a tightening stance.
U.S. Treasury yields also surged as the possibility of additional tightening by the Fed came to the fore.
On this day, the yield on the benchmark 10-year U.S. Treasury note climbed as high as 5.012 percent during trading, surpassing 5 percent for the first time since October 2023.
Market expectations have turned sharply hawkish because recent inflation indicators have come in stronger than expected, and fears of a resurgence in inflation have intensified as international oil prices soared well past 100 dollars a barrel in the wake of armed conflicts in the Middle East.
The U.S. Consumer Price Index (CPI) for August, which drew attention as the final inflation indicator right before this FOMC meeting, also remained at an elevated level.
The August CPI rose 3.4 percent from a year earlier, while the core CPI, which excludes energy and food, increased by 2.4 percent.
As the likelihood of a rate hike grows, attention is also focusing on whether Chair Warsh will clash over monetary policy with President Trump, who appointed him to head the Fed.
President Trump once again stepped up pressure for rate cuts the previous day, stating, "The U.S. economy is so strong that regardless of their formulas, we should have the lowest interest rates in the world."
On the other hand, since Chair Warsh has emphasized price stability and left the door open to a possible rate hike, a conflict with President Trump could flare up if he goes ahead with an increase as expected by the market.
Some in the market evaluate that Warsh's options have narrowed, noting that freezing rates out of regard for White House demands could instead raise questions about his commitment to fighting inflation and the Fed's credibility.
Michael Feroli, an economist at JPMorgan, pointed out, "Ultimately, because Chair Warsh has repeatedly issued strong warnings that he will not tolerate inflation, the institutional credibility of the Fed could be undermined if there are no policy actions to back it up."
Meanwhile, major Wall Street investment banks (IBs) have successively joined the forecasts for a rate hike.
Goldman Sachs, JPMorgan, and HSBC all projected that the Fed will raise the benchmark interest rate by 0.25 percentage points at this FOMC.
HSBC economist Ryan Wang forecast a September rate hike, saying, "The lack of progress in slowing inflation ultimately tipped the scales."
JPMorgan also noted that recent inflation data raised doubts over whether inflation would continue to slow, forecasting an additional rate hike later this year following the rate increase this week.
However, while expecting a rate hike this week, Goldman Sachs presented a different view regarding the subsequent rate path.
Goldman Sachs maintained its forecast for two rate cuts in 2027, but projected that the timing of the cuts would be delayed compared to previous expectations.
It also judged that the rate hike expected this week is influenced more by the financial markets having already largely priced in the possibility of a rate increase than by the underlying trend of inflation.
(Photo: Getty Images)
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