The U.S. Federal Reserve will raise rates by 50 basis points in September amid expectations that inflation will peak and rising recession fears.

Inflation, still at its highest level in four decades, fell last month, causing Fed funds futures to change sharply for a 50-basis-point hike in September after a 75-basis-point increase in June and July.

Most economists in a Reuters poll Aug. 16-19 predicted a half-percent hike next month, which would raise the key interest rate to 2.75%-3.00%.

Eighteen of the 94 polled expected the Fed to choose 75 basis points.

A cumulative 225 basis point increase since March and further growth has brought the recession closer, and the survey showed a 45% chance of a recession next year.

Rabobank's senior U.S. strategist Philip Marey says recession is a necessary evil and the only way to achieve what they want is when people don't lose all their money to rising prices.

Thirty-seven of 48 economists said that if the U.S. goes into recession in the next two years, it will be short and shallow. Ten said it would be long and shallow, and only one said it would be long and deep.

Consumer price inflation was expected to remain above the Fed's 2 percent target until at least 2024, which could push the central bank to raise the key discount rate in restrictive territory.

According to Sal Guatieri, senior economist at BMO Capital Markets, persistent inflation remains the biggest threat to the economy. Inflation may not fall as planned. In that case, discount rates should be much tighter, somewhere in the 4%-5% range.

The world's largest economy contracted in the first two quarters of the year, which is broadly consistent with a technical recession.

But the National Bureau of Economic Research, the official arbiter of the U.S. recession, is also looking at other factors to officially declare a recession, including employment and real income.

Nonfarm payrolls remained strong and the unemployment rate fell to 3.5% last month, so the economy was expected to grow by an average of 1.7% this year and 1.0% next year.