The Federal Reserve is now expected to raise interest rates by a quarter percentage point at its meeting this week, according to a poll of economists published Monday that marks a sharp reversal from last week's consensus. Eighty-six of 101 economists surveyed after Friday's inflation report — an 85% majority — said the Fed would raise its benchmark rate to 3.75%-4.00% at the September 15-16 meeting, according to . That would be the first increase since July 2023.
Last week's survey showed more than two-thirds of respondents expecting no change. Fed funds futures markets are assigning roughly a 90% probability to a rate increase at this week's meeting. The shift was driven by hotter-than-expected inflation data.
August's consumer price index rose 0.4% on a seasonally adjusted basis, lifting the year-over-year figure to 3.4%. The core CPI measure, which excludes food and energy, climbed 0.3% for the month, 0.1 percentage point above analyst expectations. Strong producer price readings also led many forecasters to conclude that core PCE inflation — the Fed's preferred gauge, currently running at nearly twice its 2% target — picked up in August.
"Warsh kind of boxed himself into where the data needed to be very soft for the Fed not to follow through with a hike," Bank of America senior U.S. economist Stephen Juneau told . "We just didn't get that...then we got this inflation report and it was firmer." Oil prices have added to the pressure. With crude futures trading above $100 a barrel amid ongoing conflict in the Middle East, inflation expectations have risen, according to .
Scott Anderson, chief U.S. economist at BMO Capital Markets, warned that the Fed's credibility is at stake: "They have to back up their hawkish rhetoric with some real action at the upcoming meeting, or they do risk a much steeper Treasury yield curve," Anderson said. Goldman Sachs, JPMorgan, HSBC, and Deutsche Bank had already reversed their positions and moved to forecasting a hike this week. Goldman had called a September increase "very unlikely" as recently as last month.
The Friday CPI release pushed fed funds futures odds to 90%, up from roughly 72% the day before, as Treasury yields remained near multiyear highs. Looking beyond this week, a near-majority of economists now expect at least one further rate increase by the end of March. Diane Swonk, chief economist at KPMG, framed Wednesday's anticipated move as potentially just the start.
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