Fed Expected to Raise Rates as Inflation Remains Above Target

President Donald Trump's hopes for lower interest rates face a setback as stubborn inflation strengthens expectations that the Federal Reserve will raise borrowing costs this week.

:Federal Reserve Chair Kevin Warsh faces pressure to keep inflation under control as markets increasingly expect an interest-rate increase.

The Bureau of Labor Statistics reported on Sept. 11 that the Consumer Price Index rose 0.4% in August on a seasonally adjusted basis and 3.4% from a year earlier.

Core CPI, which excludes food and energy, increased 0.3% during the month and 2.4% over the year.

The headline annual inflation rate was unchanged from July, while the core rate eased from 2.5% in July to 2.4% in August. Grocery prices were unchanged in August, while gasoline prices rose 3.9% and accounted for more than one-third of the monthly increase in the overall CPI.

The inflation figures have strengthened expectations that the Federal Reserve will raise its benchmark interest rate at its Sept. 15-16 meeting.

Market expectations for a quarter-point increase rose to around 85% after the CPI report, although estimates have subsequently moved higher in some markets.

A rate increase would put the Fed at odds with Trump, who has repeatedly called for lower interest rates. The president has also criticized Federal Reserve policy and pressured the central bank to reduce borrowing costs.

Fed Chair Kevin Warsh has emphasized the need to focus on inflation, which remains above the central bank's 2% target.

Rising oil prices have added to concerns about renewed inflationary pressure.

The Fed's decision will come just weeks before the US midterm elections, increasing the political sensitivity of the move. But the central bank is legally expected to make monetary-policy decisions independently of political pressure.

Financial markets will be watching not only whether the Fed raises rates but also what Warsh signals about the possibility of additional increases later this year.