Federal Reserve expected to raise benchmark rate as inflation persists

Oil at $107 a barrel after US-Iran talks fall apart, Saudi pipeline outage

The Federal Open Market Committee began its Wednesday meeting with investors expecting the panel to raise the benchmark federal funds rate to a range of 3.75% to 4%, according to United Press International. The Federal Reserve has held the rate at 3.5% to 3.75% for three years as it has tried to bring annual inflation to its 2% target.

The latest inflation data show that progress has stalled. Consumer prices rose 3.4% over the prior year in August, unchanged from the July reading, UPI reported. The repeated monthly figure indicates inflation remains sticky and threatens to climb further.

Federal Reserve Chairman Kevin Warsh placed responsibility for the persistence squarely on the central bank itself. “The responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank,” Warsh said in an address at Jackson Hole, Wyoming last month. “We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.”

The pressure on prices has been amplified by what UPI described as a war in Iran that has created a global fuel shortage and pushed oil prices higher. Peace talks between the United States and Iran have since fallen apart, renewing upward pressure on energy markets, according to the wire service.

Early Wednesday, Brent crude — the international benchmark — traded at $107 per barrel, UPI reported. An outage on a Saudi Arabian pipeline used to circumvent the Strait of Hormuz added further disruption to the oil trade.

The elevated crude prices have flowed through to U.S. consumers at the pump. The national average for regular gasoline reached $4.36 per gallon on Wednesday, according to AAA data cited by UPI.

Wednesday’s FOMC gathering is the first since the committee’s July meeting, at which members again elected to leave interest rates unchanged. If the Fed raises rates on Wednesday, the move would mark a pivot toward tightening after a three-year hold.