Fed expected to raise interest rates for first time since 2023

The Fed is expected to raise interest rates by a quarter percentage point for the first time since 2023, following strong August retail sales data that surged 1.2% against expectations. The data strengthens the U.S. economy and allows the central bank to continue fighting inflation without pushing the economy into recession. Stock markets are rising ahead of the decision.

The Fed (the U.S. central bank) is expected to raise interest rates today (Wednesday) by a quarter percentage point, for the first time since 2023. The decision comes against the backdrop of strong August retail sales data, which surged 1.2% compared to a 0.5% decline in July, surpassing economists' forecasts of a 0.7% increase. The data, published by the U.S. Commerce Department, is seasonally adjusted but not adjusted for inflation. Resilient consumer spending signals that the central bank has room to raise rates without pushing the economy into recession. Ahead of the decision, stock markets traded higher: the S&P 500 rose 0.4%, the Dow Jones gained 160 points, and the Nasdaq 100 rose 0.6%. The 10-year bond yields retreated slightly after closing around 5% yesterday, the highest level since 2007. Oil prices fell slightly after Brent closed at $108.75 per barrel. Traders price a 92% probability of a rate hike, according to CME FedWatch. A rates strategist from BMO Capital Markets noted that the central bank has rarely deviated from decisions that markets priced with such high certainty.