US Federal Reserve set to raise interest rates for first time since July 2023

The Federal Reserve is expected to raise its benchmark interest rate by a quarter of a percentage point on Wednesday, a decision that would be its first increase since July 2023.

Futures traders have assigned better than a 92% chance to an increase at the Federal Open Market Committee meeting. Such a move would lift the federal funds rate from its current target range of 3.5% to 3.75%, though the exact range after any increase is unknown.

The expected decision comes with inflation still above the central bank's 2% target. August's consumer price index recorded headline inflation of 3.4% and core inflation of 2.4%.

The Fed has left rates unchanged at its past several meetings while inflation has remained above its target. At last month's annual conference in Jackson Hole, Wyoming, the Fed chair, Warsh, indicated that the central bank would act on rates without more convincing evidence that inflation was moving back towards its 2% goal.

The prospect of an increase also tests the Fed's ability to set monetary policy amid direct political pressure. Trump has pressed the central bank to lower borrowing costs in the weeks before midterm elections. He has, however, excluded Warsh from his criticism, saying the chair is doing a "great job".

There are differences within the Fed over the value of a single increase. Governor Christopher Waller, speaking publicly on September 3, questioned what one 25-basis-point move would achieve for inflation.

That debate was visible at the Federal Open Market Committee's July meeting, when it voted 9-3 to hold rates steady. Beth Hammack of the Cleveland Fed, Neel Kashkari of the Minneapolis Fed and Lorie Logan of the Dallas Fed dissented in favour of a hike.

Markets are also pricing in the possibility that Wednesday's decision could be followed by another move. CNBC reported that the odds of a further increase in December stand above 75%.

Whether the expected increase takes place, and whether it attracts further dissents, will be decided at Wednesday's meeting. The Fed's course beyond December remains unknown.