The prospect of the Federal Reserve raising interest rates gained ground on Wednesday after US inflation came in slightly hotter than economists had expected, challenging hopes that price pressures were steadily easing, Reuters reported.The personal consumption expenditures price index, the Fed's preferred inflation gauge, rose 3.7% in July from a year earlier, accelerating from a 3.6% increase in June, according to government data. The reading adds to the policy dilemma facing Fed Chair Kevin Warsh, who has pledged to bring inflation back towards the central bank's 2% target.The latest figures suggest that inflation may not be cooling quickly enough to give policymakers a clear path towards lower rates, according to experts quoted by Reuters. While recent data had pointed to some moderation in consumer price pressures, Wednesday's report showed that the underlying problem has not disappeared. Reuters quoted Heather Long, chief economist at Navy Federal Credit Union, as saying, "The United States still has an inflation problem."For live updates on US Markets, click hereCore PCE inflation, which strips out volatile food and energy prices and is seen as an indicator of underlying inflation pressures, was 3.3% from a year earlier, no better than it had been in June. The Fed has held its policy rate steady in the 3.50%-3.75% range since December, and though Fed Chairman Kevin Warsh has vowed to end above-target inflation he has not given any indication about whether he believes it will recede without interest-rate hikes.Wednesday's data do not show it is, in conflict with earlier reports that did show a slowdown in consumer price inflation over the last couple of months. "The latest data give (Warsh) time to wait and see, but he has to be more clear about what he's watching closely and what it would take for him to hike rates," Long said, according to Reuters.Markets responded by increasing their bets on a rate increase at the Fed's next policy meeting in September. Fed funds futures prices now reflect about a 44% probability of a September Fed rate hike, up from about 36% immediately before the inflation report.Traders are also now fully convinced that the Fed will raise the policy rate by the end of the year, highlighting how quickly expectations have shifted as investors reassess the inflation outlook.The data put renewed focus on how Warsh weighs persistent price pressures against the broader economic picture. With core inflation holding above the Fed's target and headline inflation moving higher, the latest report leaves less room for policymakers to assume that inflation will simply fade on its own.(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)