U.S. Federal Reserve increases expectations for interest rate hike in September due to inflationary pressures and high energy prices

[Washington Current Affairs] The US Federal Reserve (FRB) will hold a Federal Open Market Committee (FOMC) meeting on the 15th and 16th to discuss monetary policy. Fed Chairman George Warsch stated that employment is stable and that ``the priority is price stability.'' Market expectations are growing that the Federal Reserve will raise interest rates for the first time in three years and two months since July 2023, as energy prices accelerated due to the US-Iran conflict and August price indicators showed persistent inflation.

There is talk that major central banks in Japan, the United States, and Europe may raise interest rates all at once due to inflationary pressures. The European Central Bank (ECB) decided on the 10th to further raise interest rates. The Bank of Japan is also expected to raise its policy interest rate by 0.25% at its monetary policy meeting to be held on the 17th and 18th.

The Consumer Price Index (CPI) for August announced by the US Department of Labor on the 11th increased by 3.4% compared to the same month last year. The growth rate was at the same level as the previous month due to high energy prices. Due to the jump in airfares, etc., the rate of increase in the core index, which excludes highly volatile energy and food items, was 0.3% compared to the previous month, an acceleration of 0.1 point from the previous month.

Financial giant Bank of America analyzed the CPI as giving a "green light for interest rate hikes." As the risk of a protracted US-Iran conflict intensifies, crude oil futures exceeded the $100/barrel mark on the 10th, marking the highest closing price in about four months. It has been pointed out that the recent sharp rise in crude oil prices also ``justifies financial tightening'' (Nomura Securities US).

Speaking at the annual Jackson Hole economic symposium late last month, Warsh made it clear that "we have work to do" if underlying inflation does not return to the Fed's 2% target. With hints of future monetary tightening, expectations for an interest rate hike in September have spread.

If he decides to raise interest rates, tensions will quickly rise with President Trump, who has called for lower interest rates in an effort to boost the economy and boost stock prices ahead of the midterm elections. Trump has discouraged interest rate hikes, saying, ``The Fed needs to get smarter.''