Markets Price Fed Rate Hike Amid Sticky Inflation

Former RBI governor Raghuram Rajan urged the Fed to raise rates sooner and take a more hawkish stance as US inflation remains elevated, arguing that financial conditions are not yet restrictive. He praised Fed Chair Warsh's instincts while noting markets have already priced in some tightening, with December seen as a likely move. July data showed the Fed's favored PCE inflation at 3.7% year over year with core at 3.3%, reinforcing arguments for additional tightening. Markets currently price roughly a 44% chance of a September rate increase, reflecting persistent inflation pressures. Federal Reserve Bank of Boston President Susan Collins signaled that rates may need to climb higher if fresh data fail to confirm a sustained move toward the 2% target, highlighting ongoing internal debates. Taken together, policymakers and markets remain cautious, as disinflation signals are mixed and the case for near-term rate increases remains alive.