Some economists are calling on the central bank to wait before raising interest rates, out of concern the economy may be vulnerable beneath the surface

Traders see a 92% chance that the Federal Reserve, led by Kevin Warsh, will increase interest rates at its meeting this week.

Investors on Wall Street and observers of the Federal Reserve in Washington largely expect the central bank to raise interest rates when it meets this week, but some prominent economists are warning that such a move could prove to be a mistake.

They see the economy as more vulnerable to a steep slowdown in growth than commonly believed. The Fed's job is to keep employment steady and inflation under control. If central bank officials raise rates on Wednesday, the goal will be to cool inflation. But these economists worry that a rate hike could cause a sharp cut in economic activity, which could prompt businesses to let go of workers and ultimately lead to a recession.

"The odds of a serious Fed policy mistake are uncomfortably high and rising," warned Mark Zandi, chief economist at Moody's Analytics, in a post on X.

It's hard to slow economic growth without layoffs, rising unemployment and igniting a "self-reinforcing negative cycle," said Zandi, who has advised leading Democrats over the years.

In late August, Fed Chairman Kevin Warsh used his remarks at the Jackson Hole economic symposium to signal that he was concerned about inflation trends. He said he wouldn't hesitate to act if the inflation picture worsened.

Ten days ago, investors put the odds of a rate hike at about 50%. But rising diesel prices, renewed tensions in the Middle East and Friday's hotter-than-expected consumer inflation report have convinced traders and economists that Warsh will follow through on his tough talk and raise rates.

Fed officials will meet behind closed doors Tuesday and Wednesday to decide whether to hike interest rates or hold them steady. The Fed's decision will be announced at 2 p.m. Eastern time on Wednesday, and Warsh will hold a press conference at 2:30 p.m.

Carl Tannenbaum, chief economist at Northern Trust, said the argument for raising rates isn't as clear-cut as the markets and many commentators believe, adding that the central bank has no easy options.

While economic activity has remained buoyant in the face of the war and tariffs, he said, "the economy is not invulnerable."

Lower-income households are tapping into savings to keep up with inflation, he noted.

"Holding rates steady would provide additional time to assess whether there are potential cracks in the foundation of the expansion," Tannenbaum said in an email to clients.

Steve Englander, global head of G10 FX Research, said a hike would be premature given the crosscurrents in the inflation data.

He said the correct Fed policy decision would be to stay on hold until these contradictory signals abate.

For the Fed to raise rates and then have to reverse course and cut rates in a few months would be seen as Warsh having "a very unsteady hand on the tiller."

Some economists think the markets have gone too far in pricing in a hike.

Michael Strain, director of economic policy studies at the American Enterprise Institute, said that the market is reading the Fed wrong and that the "center of gravity" among Fed officials still supports keeping rates unchanged.

Without higher energy prices and tariffs, underlying inflation would be closer to 2.5%, not far above the Fed's 2% target, he said.

Although the likelihood of a rate increase has certainly gone up in recent weeks, Michael Pearce, chief U.S. economist at Oxford Economics, said the September decision could still go either way.

"We're sticking with our forecast that the Fed leaves rate on hold," Pearce said in a note to clients.

-Greg Robb