Fed Faces Pressure to Raise Rates for First Time in Three Years
Markets are bracing for a Federal Reserve decision on Wednesday to raise its benchmark interest rate by 0.25 percentage points — the first increase in three years. The move, to be announced by new Fed Chair Kevin Warsh, is widely seen as almost certain, though it remains unclear whether it will be a one-off adjustment or the start of a broader tightening cycle.
A Nearly Certain Hike
The Federal Open Market Committee (FOMC) concludes its two-day meeting on Wednesday, and investors broadly expect a quarter-point increase in the benchmark rate. According to Yahoo Finance UK, this would take the federal funds rate to a range of 3.75% to 4%. Bankier.pl reports that on Tuesday markets priced the probability of a hike at nearly 95%, while Business Insider Polska cites a slightly lower estimate of over 90%. Both sources agree the increase is regarded as all but settled.
Eight Months Without Movement
As Bankier.pl explains, this would be the Fed's first rate increase in three years. Earlier this year markets had expected two rate cuts; forecasts later shifted to two hikes, yet the Fed left rates unchanged for eight months. The decision is being driven by persistent inflation — consumer prices rose above 4% in spring, more than double the Fed's 2% target — along with an unexpectedly strong August jobs report and inflation data that matched expectations.
Oil Prices and the Bond Market
The widening conflict in the Middle East has pushed up oil prices and heightened inflation concerns. Yahoo Finance UK reports that on Wednesday Brent crude fell 1.2% to $107.47 a barrel and WTI dropped 1.8% to $103.94, though both benchmarks had risen at least 5% over the previous week. Business Insider Polska notes that the yield on 10-year US Treasury bonds surpassed 5% — its highest level since 2007. Bankier.pl adds that the 2-year Treasury yield has climbed from 4.25% to nearly 4.70% since Warsh's August remarks.
Political Pressure
President Donald Trump has repeatedly called for interest rates to be as low as possible, ideally zero. Fed Governor Stephen Miran, a Trump appointee, argued on CNBC on Tuesday that a rate hike would be a mistake — a stance suggesting he may dissent from the decision. Kevin Warsh, who in July blocked a push by three FOMC members for a hike while simultaneously adopting hawkish rhetoric and vowing to reach the 2% inflation target, now faces the task of acting against the White House's wishes.
Market Reaction
Ahead of the decision, US stock futures rose on Wednesday — Dow Jones futures up 0.3%, S&P 500 futures up 0.3%, and Nasdaq 100 futures up 0.5%, according to Yahoo Finance UK. Business Insider Polska warns that the equity risk premium — the gap between S&P 500 earnings yield and the 10-year Treasury yield — is at its lowest since 2002, leaving stocks little room for error. Most economists at major investment banks, as cited by Bankier.pl, expect the Fed to raise rates by a total of 50 basis points by the end of 2026 (in September and December), and by roughly 100 basis points over the next 12 months. The Fed will announce its decision Wednesday at 20:00 Central European time, alongside updated economic projections and the so-called "dot plot" of policymakers' rate expectations.
