CoinTelegraph reports—global attention is focused on the Fed’s interest rate decision this week. August CPI rose 3.4% year-over-year, with core CPI up 0.3% month-over-month, signaling stalled inflation retreat. Markets are pricing in an 86.5% probability of a 25-basis-point rate hike. Chair Walsh faces a credibility test amid pressure from Trump and the fight against inflation, as the Fed’s independence undergoes a historic examination.
CoinMarketCap APP reports — As the shadow of inflation once again looms over the world’s largest economy, the Federal Reserve’s interest rate decision this week has transcended routine policy adjustments, becoming a severe test of the central bank’s independence and the credibility of its policymakers. The U.S. August CPI rose 3.4% year-over-year, while core CPI rebounded 0.3% month-over-month, with energy prices continuing to push prices higher; market expectations for a 25-basis-point rate hike have surged to 86.5%. Facing sustained pressure from Trump, Chair Kevin Warsh must choose between combating inflation and political pressure. All eyes are on Wednesday.
I. Market Bets on Rate Hikes Are Now a Done Deal: The Inflation Reality Behind the 86.5% Probability
The Federal Reserve will announce its latest interest rate decision this Wednesday, September 16, and global financial markets are holding their breath. According to the latest data from the CME FedWatch tool as of September 14, the market expects an 86.5% probability that the Fed will raise the target range for the federal funds rate from the current 3.50%-3.75% to 3.75%-4.00%, with only a 13.5% chance of maintaining rates unchanged.
The sharp rise in this probability directly stems from the August Consumer Price Index (CPI) data released last Friday. According to the U.S. Bureau of Labor Statistics, the August CPI rose 0.4% month-over-month, a significant rebound from 0.1% in July; the year-over-year increase remained at 3.4%, consistently well above the Federal Reserve’s 2% long-term target. More concerning to markets, core CPI, excluding food and energy, rose 0.3% month-over-month, exceeding the market expectation of 0.2%. Although the year-over-year core inflation rate edged down slightly from 2.5% in July to 2.4%, the accelerated monthly growth rate indicates that inflation remains stubbornly persistent.
Energy prices have become the core driver of this inflation rebound. In August, the energy index rose 2.1% month-over-month, with gasoline prices surging 3.9%—a single factor accounting for over one-third of the month’s overall CPI increase. Over the past 12 months, the energy index has skyrocketed 16.3% year-over-year, with gasoline up 27.4%, electricity prices rising 3.8%, and piped gas prices increasing 4.4%, as household utility costs continue to climb.
II. Wash’s Hawkish Bet: From Talking Tough to Taking Action
The reason this interest rate decision has drawn unprecedented attention is due to the personal credibility of Federal Reserve Chairman Kevin Warsh.
Wash was officially sworn in as the 17th Chair of the Federal Reserve on May 22, 2026, following the U.S. Senate’s approval of his appointment by the narrowest margin in history—54 votes in favor and 45 against. This chair, personally nominated by Trump, immediately demonstrated a clear hawkish shift upon taking office. At the Jackson Hole Global Central Bank Symposium on August 28, Wash explicitly stated that U.S. core inflation has not shown meaningful improvement, and that policymakers still have “work to do” if future data fails to demonstrate that inflation is moving back toward the 2% target.
This statement has placed Walsh into a delicate “credibility trap.” Omair Sharif, founder of Inflation Insights, bluntly stated that after making the above hawkish remarks, it will be difficult for Walsh to oppose an interest rate hike at the next meeting. Economists Anna Wong and Andrew Sacher from Bloomberg Economics also noted that market signals are clear: investors want and expect the Federal Open Market Committee to raise rates; if the Fed ultimately holds steady, Walsh’s credibility among market participants could be damaged.
Economists at Evercore ISI, including Krishna Guha, further analyzed that, amid ongoing inflationary pressures from oil prices, Walsh may believe the current data is insufficient for the Fed to ignore inflation risks, and that a rate hike could also help restore its policy credibility, which has been affected.
III. The Power Struggle Between the White House and the Federal Reserve: Independence Under Unprecedented Pressure
The challenge facing Walsh is not only a technical judgment on monetary policy, but also a microcosm of the power struggle between the White House and the Federal Reserve.
Since Trump’s second term, his attacks on the independence of the Federal Reserve have escalated. In January 2026, the U.S. Department of Justice served a subpoena to the Federal Reserve, threatening criminal prosecution over then-Chair Powell’s June 2025 testimony before the Senate. Powell immediately pushed back publicly, calling it an “excuse” to undermine the Fed’s independence. The incident prompted a joint statement from three living former Fed chairs—Yellen, Bernanke, and Greenspan—along with four bipartisan former Treasury secretaries, condemning it as an “unprecedented attempt to erode central bank independence through prosecutorial means.”
Trump also attempted to remove Federal Reserve Board member Lisa Cook and consistently pressured the Fed to lower interest rates to stimulate the economy. However, as inflationary pressures remain high, the conflict between Trump’s calls for rate cuts and the Fed’s mandate to combat inflation has grown increasingly acute.
David Wessel, a senior fellow at the Brookings Institution, commented: “This is the test. It’s part of the job, and now he must decide how to respond. He will either completely disappoint the market or begin to anger Donald Trump.” Wessel further noted that if Walsh chooses to raise rates at this juncture, he will establish his credibility as an independent Federal Reserve chair for the remainder of his term.
Four: “The Expensive Medicine”: The Economic Ripple Effects of Interest Rate Hikes
Claudia Sahm, who previously worked at the Federal Reserve and is now chief economist at New Century Advisors, takes a cautious stance on the rate hike decision. She said, “The likelihood of a Fed rate hike next week is quite high, but it’s not a foregone conclusion. It’s a difficult decision for them.” Sahm describes a rate hike as “an expensive medicine,” not a “magic wand.”
The transmission effect of rate hikes has become evident across multiple levels. The yield on the 10-year U.S. Treasury note has recently risen to 4.943%, reaching its highest level since October 2023; the yield on the 30-year Treasury bond briefly hit 5.37%, the first such level since 2001. Consumers are also feeling the pressure of higher borrowing costs: the average mortgage rate has reached 7%, and the average new credit card rate stands at 23.82%.
Meanwhile, Trump’s military actions against Iran continue to push up energy prices. briefly surpassed $100 per barrel, and the national average price for diesel in the U.S. reached a record high of $5.897 per gallon. The costs of tariff policies are also accelerating their transmission to consumers; research from the Tax Foundation shows that Trump’s tariff policies have caused American households to spend an average of $840 extra since 2026.
Wash’s reforms to communication methods are also noteworthy. Since taking office, he has significantly reduced the Federal Reserve’s policy statements from the usual 300 to 400 words to about 130 words and removed all forward guidance. This “less talk, more action” approach, while intended to reduce the Fed’s “reverse intervention” in markets, has increased uncertainty in how financial markets price expectations for inflation and interest rates. Analysts believe that when the Fed refuses to provide clear forward guidance, markets are forced to elicit signals from the central bank through volatility.
Five: The December Uncertainty—Is the Rate Hike a “Cautious Adjustment” or the Start of a Tightening Cycle?
The key focus of this decision is not only whether to raise rates by 25 basis points, but also whether the Fed will signal further tightening ahead.
According to the dot plot released at the June FOMC meeting, nine of the 19 Fed officials believe rates will be raised within 2026, only one expects a rate cut, and eight anticipate rates will remain unchanged. The median forecast for the federal funds rate in 2026 has risen from 3.4% in March to 3.8%, indicating room for at least one more rate hike this year.
The forces within the Federal Reserve supporting tightening continue to grow. Although the benchmark interest rate has remained unchanged for five consecutive meetings this year, three officials voted in favor of a 25-basis-point rate hike at the July meeting, and two additional non-voting officials indicated they would have supported a hike if they had voting rights.
Analysts such as Joseph Brusuelas, Chief Economist at RSM US, note that markets are beginning to debate whether the Federal Reserve needs to reverse the cumulative 75 basis point rate cuts implemented last year in response to the risk of a slowing labor market. Consumer inflation expectations are also rising: according to the latest survey from the University of Michigan, U.S. consumers’ one-year inflation expectations jumped from 4% in August to 4.6% in early September—the first time since 2023 that more than half of consumers expect interest rates to rise over the next 12 months.
The Federal Reserve will announce its decision at 2:00 PM Wednesday (2:00 AM Beijing time on Thursday), following a two-day meeting, after which Walsh will hold a press conference. The economic projections released and Walsh’s policy remarks will determine whether this rate hike is merely a “precautionary adjustment” or the beginning of a new tightening cycle.
Edit summary
The core contradiction in this Fed rate decision lies in the irreconcilable tension between inflation control and political pressure. The U.S. August CPI data confirmed that the inflation decline has stalled, with energy prices continuing to rise due to geopolitical conflicts and tariff costs accelerating their transmission to consumers—factors that collectively create sufficient conditions for a rate hike. Moreover, Powell’s hawkish remarks at Jackson Hole have nearly eroded the credibility of maintaining current interest rates.
From a broader perspective, the significance of this resolution extends beyond monetary policy. As the Fed chair nominated personally by Trump, Waugh’s decisions will directly test whether the Fed can maintain its independent decision-making under political pressure. The Senate confirmation vote of 54 to 45 vividly reflects the reality of congressional political polarization, while the criminal investigation into Powell has further intensified this tension. Waugh must navigate a viable path between preserving central bank independence and meeting the White House’s expectations. Regardless of the outcome, this resolution will serve as a critical benchmark for assessing the resilience of the Fed’s institutional framework.
Frequently Asked Questions
Question 1: Why does the market believe the probability of the Fed raising rates this week is as high as 86.5%?
This expectation is primarily based on two factors. First, the August CPI data showed stalled inflation retreat: the year-over-year increase remained at 3.4% for the third consecutive month, and core CPI rose 0.3% month-over-month, exceeding expectations, while gasoline prices surged 3.9% month-over-month, driving a rebound in overall inflation. Second, Walsh clearly stated at Jackson Hole that “if the data does not demonstrate that inflation is moving toward the 2% target, policymakers still have work to do,” a hawkish remark that convinced markets he would follow through on his pledge to raise rates at this meeting. The CME FedWatch tool, incorporating this information, prices in an 86.5% probability of a rate hike.
Question 2: As Trump’s nominated Fed chair, why does Walsh tend to favor rate hikes?
Wash’s situation reflects a classic institutional tension. Although nominated by Trump, the statutory duties of the Federal Reserve Chair require decisions to be based on economic data rather than political preferences. Since taking office, Wash has repeatedly reaffirmed his commitment to defending the 2% inflation target in multiple public appearances, and his personal credibility has become deeply tied to his anti-inflation stance. If he chooses to hold steady while inflation remains at 3.4%, it would not only undermine market confidence in the credibility of his policies but could also trigger further runaway inflation expectations. Wessel of the Brookings Institution notes that if Wash raises rates now, he will establish his credibility as an independent Federal Reserve Chair for the remainder of his term.
Question 3: How will interest rate hikes affect the U.S. economy and average consumers?
Higher interest rates will raise borrowing costs across the board. The yield on 30-year Treasury bonds has already reached 5.37%, average mortgage rates have hit 7%, and the average new credit card rate stands at 23.82%. Further rate hikes mean costs for buying homes, cars, and repaying credit cards will continue to rise, potentially dampening business investment and consumer spending. Sam describes rate hikes as “an expensive medicine,” whose core mechanism is to curb inflation by suppressing demand—but this process inevitably carries the risk of slowing economic growth.
Question 4: What are the specific ways in which Trump has interfered with the independence of the Federal Reserve?
Since his second term, Trump has escalated his pressure on the Federal Reserve. In January 2026, the U.S. Department of Justice served a subpoena to the Federal Reserve, threatening to bring criminal charges against then-Chair Powell; Trump also attempted to remove Federal Reserve Governor Lisa Cook from her position; additionally, he repeatedly publicly criticized the Fed’s interest rate policy, demanding rate cuts to stimulate the economy. These actions drew joint condemnation from central bank governors and former financial officials worldwide, deemed an “unprecedented assault” on central bank independence.
Question 5: If the Federal Reserve raises rates this week, will it continue to hike in December?
There is currently divergence in the market. The June dot plot showed that nine out of 19 officials anticipated rate hikes this year, with some forecasting two or even three increases. The median forecast for the federal funds rate in 2026 has risen to 3.8%, suggesting room for at least one more hike. However, institutions like Evercore ISI believe this rate hike is more likely a “insurance adjustment,” with the path forward heavily dependent on inflation data and oil price trends. If energy prices continue to rise due to tensions in Iran, the likelihood of another hike in December will rise significantly; conversely, if clear signs of declining inflation emerge, the Fed may opt to pause and hold.