Good afternoon. The US Federal Reserve is widely expected to raise interest rates for the first time since 2023, because inflation has apparently not received the memo that it was supposed to calm down already. After holding rates steady at its last meeting in July, the Fed is now anticipated to raise interest rates by a quarter of a percentage point (25 basis points), bringing the benchmark federal funds rate to a new target range of 3.75% to 4%.

The central bank's last increase effectively bookended its Covid pandemic response, but inflation has remained above its 2% target for more than five years now and has been further exacerbated by Donald Trump's disastrous and ongoing war against Iran. Nothing says "price stability" like a war-induced energy crisis, apparently.

The US president has repeatedly demanded that rates be cut, creating intense pressure on his handpicked chair, Kevin Warsh. On Sunday, days before the Fed's September meeting was due to kick off, Trump said the United States should have "the lowest interest rate in the world" regardless of what the data indicates about inflation or the economy. Because who needs data when you have vibes?

If he decides to go ahead with the hike, Warsh will no doubt infuriate the president, who regularly attacked his predecessor Jerome Powell. Trump has so far been more supportive of Warsh since he took charge earlier this year, but he's become more vocal recently. "LOWER THE RATE OR I'LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT," the president posted on social media two weeks ago. A masterclass in economic diplomacy.

The Fed's decision comes just weeks out from November's crucial US midterm elections, which will determine whether or not Trump's Republican party retains control of Congress, with affordability and the cost-of-living crisis the major issue for voters. So no pressure or anything.

According to a Duke University survey of 32 former Fed governors, regional presidents and staffers, 29 endorsed a rate hike, two didn't answer and one said the Fed should stay on hold. "The Fed and new chair's credibility is on the line," one former official said. Nothing like a little existential dread to spice up monetary policy.

"I am no longer confident that PCE inflation will return to 2% in the next year or two without the Fed raising interest rates," the official added. Above all, the upside risks to the inflation outlook have worsened since July: energy prices have not reversed as expected, tariff pass-through continues, and the AI build-out is adding to price pressures. Because of course AI is making everything more expensive. It's not just coming for your job; it's coming for your wallet too.

"Earlier in the year, it appeared that there was some hope that inflation would decline closer to its 2 percent target within a year or two. That now appears less likely," the official continued. While some of the effects of tariffs and war-induced shortages may manifest as price-level effects, with temporary inflation consequences, it's hard to have much confidence in that. Thus, a more sustained increase in inflation is quite possible. In other words: buckle up.

Clearly, none of those who responded to the poll backed a rate cut, which Donald Trump has been pushing for. However, they also didn't think dramatically high rate increases would be necessary to tackle the inflation challenge. So, a moderate hike: the economic equivalent of a stern talking-to.

The Fed has two mandates: price stability and supporting the job market. The jobs market has remained robust but spikes in energy prices have put the central bank under pressure to raise rates in order to bring down inflation. Americans have spent over $100bn extra on gasoline and diesel during Trump's war on Iran than they would have had there been no war, according to estimates by the Climate Solutions Lab at Brown University. That's $100bn that could have gone toward, say, literally anything else.

The Fed is due to release its decision at 2pm ET, and Warsh will hold a press conference at 2.30. We'll bring you all the latest here, so stay tuned. Because nothing says "must-see TV" like a central banker trying to explain inflation to a president who thinks interest rates are a popularity contest.