‘This is the test’: All eyes on US Fed to tackle high inflation

The US Federal Reserve faces a critical meeting this week to decide on a potential interest rate hike aimed at curbing persistently high inflation. The economy has been grappling with inflation above its two percent target, driven by factors like the Trump administration's trade policies and the AI boom. Fed Chair Kevin Warsh, appointed by Trump, is under the microscope to prove his credibility in tackling the economic challenge.

Recent data showed August's consumer inflation remained steady at 3.4 percent, well above the Fed's long-term target. Markets anticipate a 25-basis-point rate increase, with a probability exceeding 85 percent. The Fed has kept rates steady since January, waiting to assess the impact of energy price shocks and tariff effects. If inflation doesn't show signs of slowing, the Fed may have to act by raising rates.

Warsh's decision could either disappoint the markets or anger President Trump, depending on his choice. Raising rates would increase borrowing costs and potentially slow down investment and consumption. Warsh has advocated for lower rates due to AI productivity gains, but now emphasizes the Fed's mandate to control inflation. The Federal Open Market Committee will announce its decision after a two-day meeting on Wednesday at 2:00 pm (1800 GMT).