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Federal Reserve Chairman Kevin Warsh faces a difficult vote count as policymakers prepare to decide both the immediate direction of interest rates and the broader course of monetary policy. Markets overwhelmingly expect a quarter percentage point increase Wednesday, but the margin among the 12 Federal Open Market Committee voters remains uncertain.

Futures traders on Monday afternoon assigned a probability above 92% to an increase this week, according to the CME Group’s FedWatch gauge. They also saw a greater than 75% chance of another move in December, while the federal funds rate currently stands at 3.50% to 3.75%.

Bill Dudley, the former New York Fed president, said doing nothing after Warsh’s recent warnings would carry a heavy credibility cost. “With the market priced this way, it would be shocking if he came in and did nothing,” Dudley said in a CNBC interview.

Fuel prices have risen again, while inflation data showed prices continuing to climb in August. Those developments followed Warsh’s warning that the Fed could be forced to act without clearer evidence that inflation is moving back toward the central bank’s 2% target.

Yet the case for higher rates is complicated by the forces behind the latest inflation increase. Economists generally attribute much of this year’s rise to tariffs and an energy supply shock from the Iran war, both of which have uncertain effects on inflation’s longer trajectory.

Goldman Sachs economist David Mericle argued that the economic justification for an increase remains weak. “We think that all of the overshoot of 2% can be attributed to one-time factors whose impact is likely to fade,” he wrote, though Goldman changed its forecast from no action to a hike.

The committee entered this meeting after voting 9 to 3 to hold rates steady in July. Dallas Fed President Lorie Logan, Cleveland Fed President Beth Hammack and Minneapolis Fed President Neel Kashkari supported a quarter point increase at that meeting.

If those three officials maintain their positions, four members who previously backed a hold would need to switch to supporting an increase. Their public comments have offered no indication that they have abandoned their earlier support for tighter policy.

Governor Christopher Waller is among the most closely watched voters. In remarks delivered Sept. 3, he supported another hold while leaving room to reconsider if incoming data failed to confirm that disinflation was continuing.

“What’s the cost of waiting one meeting? Hiking 25 basis points, one meeting right now, is not going to bring the [consumer price index] down to 2%,” Waller said.

August’s consumer price index showed headline inflation running at 3.4%. The core rate, which excludes food and soaring energy costs, came in at 2.4%, down 0.1 percentage point from July.

New York Fed President John Williams also favored patience, telling CNBC less than two weeks ago that a “wait-and-see” approach appeared sensible. Earlier in the summer, Williams said he believed inflation had peaked.

Governor Michael Barr has expressed concern that temporary inflation could become more deeply rooted and said he was open to an increase, though not committed to one. Warsh is widely expected to support a hike following his remarks last month in Jackson Hole, Wyoming.

Governor Lisa Cook said in early August that she was “prepared to act” against inflation. Philadelphia Fed President Anna Paulson and Chicago Fed President Austan Goolsbee, by contrast, have advised a more patient approach.

The less visible group includes Vice Chair Philip Jefferson, former Chairman Jerome Powell and Governor Michelle Bowman. Powell has maintained a low profile since leaving the top job, while Bowman spoke little about monetary policy over the summer and warned in May about raising rates unnecessarily.

Another question is whether undecided members would support Warsh to present a united front. The result could reveal both the committee’s division over whether inflation is temporary and the strength of Warsh’s influence within the Fed.

JPMorgan Asset Management chief global strategist David Kelly said members could rally around a hike once a majority forms. He said such an outcome could leave the final decision with two, one or no dissents.

Investors will then scrutinize the Fed’s updated “dot plot,” which anonymously records rate expectations from all 19 meeting participants. Warsh withheld his projection from the June update, and markets will seek evidence of support for two hikes this year, along with the outlook for 2027 and the first projections for 2029.

If the committee remains closely split, Warsh’s Wednesday afternoon news conference will become the next major test. Dudley said the Fed must explain its thinking about the economy, adding that Warsh now must follow his warnings with action.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.