Federal Reserve poised to raise benchmark rate by 0.25 percentage point on Sept. 16
Economists expect the Fed to lift its target rate to 3.75%-4% at its September meeting, citing persistent inflation and high energy prices, with potential for additional hikes later this year.
The Federal Reserve is expected to increase its benchmark interest rate by a quarter point at its September 16 meeting, the first hike since July 2023. The move would raise the federal funds target range to 3.75%-4%, according to CME FedWatch, which assigns about a 90% probability to the increase. Economists say the decision reflects inflation that remains above the Fed’s 2% goal, with the Consumer Price Index up 3.4% year-over-year in August, and elevated energy costs linked to the ongoing conflict in Iran.
"If everything stays the same and energy prices remain elevated and the economy remains pretty strong, there's good reason to expect maybe another hike or two beyond this week," said Brandon Zureick, chief economist at Johnson Investment Counsel. Seema Shah, chief global strategist at Principal Asset Management, added that the debate has shifted from whether to tighten policy to how much tightening is required to restore price stability.
The rate hike is likely to be passed on to borrowers. Matt Schulz, chief consumer finance analyst at LendingTree, warned that credit-card APRs could rise by a quarter point, adding a modest increase to monthly payments for those carrying balances. At the same time, higher rates could support stronger yields on high-yield savings accounts and certificates of deposit, offering better returns for savers.
Investors may see short-term market volatility, but analysts note that expectations of further hikes are already priced in. Zureick advised maintaining a diversified portfolio and avoiding attempts to time the market, emphasizing steady, long-term investment strategies.