Fed May Raise Rates Again, but War and Chip Shortages Could Blunt the Impact

Federal Reserve officials have signaled they are prepared to raise interest rates if inflation does not improve quickly, though the effectiveness of that move may be limited by the forces now driving prices higher. Futures contracts currently imply that investors see about a 60% chance of a rate increase at the Fed’s Sept. 15-16 meeting. According to Bloomberg, Wolfe Research chief economist Stephanie Roth said the main factors keeping inflation above trend are the Iran war, tariffs and a shortage of chips. In her view, even one or two additional rate hikes would be unlikely to fundamentally change that backdrop. The remarks point to a situation in which the Fed’s main policy tool could struggle to restrain inflation if price pressures are being sustained by supply-side and geopolitical factors rather than demand alone.