With inflation still running well above the Federal Reserve's 2% target, markets are pricing in a near-certainty that the central bank will raise interest rates at its September meeting this week, a move that could push borrowing costs to their highest level in years.

The Federal Open Market Committee, the Fed body that sets the benchmark federal funds rate, has held rates steady at all five of its meetings so far this year, keeping the target range at 3.5% to 3.75%. That streak appears likely to end Wednesday. The CME FedWatch tool, which tracks market expectations for rate moves, puts the probability of a 25-basis-point hike at 92.5%, with only a 7.5% chance the Fed stands pat.

The pressure is coming from the same place it has for months: prices that refuse to fall fast enough. The personal consumption expenditures index, the Fed's preferred inflation gauge, rose 3.7% on an annual basis in July. Strip out volatile food and energy costs, and core PCE still came in at 3.3%. August's consumer price index reading told a similar story, with headline CPI at 3.4% year-over-year and core CPI at 2.4%. Every one of those figures sits above the Fed's stated long-run target of 2%.

Vanguard economist warns inaction could rattle markets

Josh Hirt, a senior economist at Vanguard, told Fox Business on Friday that the latest inflation data makes a strong case for the Fed to move, and that failing to do so could backfire.

"Developments over the last week, including the inflation report today, I think almost make the case that you could have a somewhat more adverse reaction if the Fed does not go [on Wednesday] unless the communication around the rationale behind that was extremely strong relative to them actually moving at this meeting."

Hirt argued that a rate hike would not necessarily push Treasury yields higher. He said the opposite is more likely: a move by the Fed could ease pressure on bond markets by reassuring investors that policymakers are serious about fighting inflation.

"In fact, it could relieve some of the pressure in some extent, that the Fed did act, that the market is comfortable that they would be willing to do so."

The alternative, Hirt said, is worse. If the Fed holds steady and markets begin questioning its credibility, yields could extend even further upward, exactly the outcome the central bank would want to avoid.

Ten-year Treasury yields haven't been this high since 2007

The bond market is already flashing warning signs. The yield on the 10-year Treasury note is hovering around 5%, a level not seen since 2007. That matters beyond Wall Street. Higher Treasury yields raise the federal government's cost of servicing its debt, which is already a key driver of growing budget deficits.

And the market does not expect the Fed to stop at one hike. CME FedWatch data shows a 49.7% probability of two 25-basis-point increases before the end of the year, which would push the target range to 4% to 4.25%. Nearly 29% of traders are pricing in three hikes, which would land the range at 4.25% to 4.5%. Only about 20% of the market expects a single hike through year-end.

Hirt said he does not expect a dramatic shift in the dot plot, the chart where individual Fed policymakers project the future path of interest rates, when it is released alongside Wednesday's decision. As of the June dot plot, the most aggressive policymaker had penciled in roughly three rate hikes.

"It's not clear to me that you would need to see a lot of members move much higher than that, if at all, but maybe just more a move up from those that didn't have any or only had one rate hike."

Warsh's third meeting as chair, and he still won't show his hand

Wednesday's announcement will mark the third FOMC meeting led by Fed Chair Kevin Warsh, who was confirmed to the role in May. Warsh has declined to submit his own dot plot projection, citing his opposition to providing forward guidance. That decision leaves markets without a direct signal from the person running the central bank, an unusual posture at a moment when clarity is in high demand.

The FOMC has two more scheduled meetings after September to close out the year, in October and December. Its next cycle of meetings begins in late January.

For months, the Fed held rates steady while inflation stayed stubbornly above target. If policymakers finally act Wednesday, the question shifts to whether they moved soon enough, or whether months of patience let prices and borrowing costs climb higher than they needed to.

Waiting rarely gets cheaper. The bill for inaction almost always comes due.