Preview: The FOMC Rate Decision and SEPs due Wednesday, 16th September 2026 at 19:00BST/14:00EDT

• 85% of forecasters expect the Fed to hike 25bps, while money markets price in a c. 90% probability of a hike.
• Hike expectations strengthened following the hotter-than-expected August core CPI print.
• Dot plot eyed for whether policymakers expect further hikes beyond September.

SUMMARY:

The latest consensus is for the Federal Reserve to hike rates by 25bps, taking the target range for the FFR to 3.75-4.00%. The hotter-than-expected August core CPI print has bolstered expectations for a hike, while the robust August labour market report gives the Fed greater scope to tighten policy without immediate concern over the employment side of its mandate, with money markets assigning around a 90% probability to a 25bps rate hike.

Meanwhile, Chair Warsh's recent inflation-focused rhetoric has contributed to a debate around Fed credibility. At Jackson Hole, Warsh placed significant emphasis on returning inflation to target and said the Fed still had work to do unless underlying inflation resumed clear progress towards 2%. Following the hotter August core CPI M/M print, some argue that holding rates steady could therefore sit awkwardly alongside his recent messaging.

Nevertheless, a hike is not guaranteed. Around 15% of economists surveyed by Reuters expect the Fed to hold rates steady, while markets are not yet fully pricing a hike. Governor Waller also leaned towards a hold ahead of the blackout period, saying he would support keeping rates unchanged if the August inflation data showed continued progress, although importantly he added that he would consider a hike if inflation came in hot.

Financial conditions provide another consideration. Warsh has previously appeared comfortable with some tightening in financial conditions, suggesting it can help the Fed achieve its objectives. The recent backup in Treasury yields and associated tightening in financial conditions could therefore be doing some of the Fed's work.

Alongside the rate decision, the Fed will publish its updated Summary of Economic Projections (SEPs). Warsh is expected to refrain from submitting his own forecasts, as he did last time, given his aversion to forward guidance, but the projections and dot plot from other FOMC participants will be closely scrutinised for clues on the future policy path. WSJ's Timiraos recently highlighted the historical tendency for Fed hikes to come in sequences, citing former Fed Vice Chair Richard Clarida, who said: "If we get a hike next week, certainly we'll get additional ones." Timiraos noted that the Fed has only once delivered a one-and-done hike, and that was in 1997.

EXPECTATIONS:

The Federal Reserve is widely expected to hike rates by 25bps on Wednesday, taking the target range to 3.75-4.00%, after August inflation data showed a hotter-than-expected core CPI print. Prior to the inflation report, the consensus had been for rates to remain unchanged, although many desks subsequently shifted their calls towards a hike.

The consensus is not unanimous. The latest Reuters poll found 85% of 101 economists expect the Fed to hike, with the remainder looking for rates to remain unchanged. Looking further ahead, around 53% of forecasters expect another hike by the end of March 2027. Money markets, meanwhile, are pricing around a 90% probability of a hike on Wednesday and almost three hikes between now and March.

Although a hike is the clear consensus, Oxford Economics argues that the dovish case should not be dismissed. The desk expects the decision to be close, with what it characterises as a third consecutive set of moderate inflation data narrowly supporting a majority for holding rates steady. Oxford Economics acknowledges that the surge in oil prices and elevated inflation create a risk-management case for tightening, but notes that officials do not typically react to every move in markets and argues that tighter financial conditions are already doing some of the Fed's work in restraining inflation.

ECONOMY:

August US CPI saw headline inflation accelerate to 0.4% M/M from 0.1%, in line with expectations, while the Y/Y rate was unchanged at 3.4%, also as expected. More importantly for the Fed, core CPI rose 0.3% M/M, above the 0.2% forecast and prior, while the Y/Y rate eased to 2.4% from 2.5%, in line with expectations. The hotter core monthly print further cemented expectations for a 25bps Fed hike, particularly following Warsh's inflation-focused Jackson Hole commentary.

The labour market has also remained resilient, removing some of the downside risk that could otherwise argue against tighter policy. The US economy added 162k jobs in August, well above the 56k forecast and the upwardly revised 21k increase in July. June payrolls were also revised higher by 11k to 31k, easing some of the labour-market concerns that had emerged heading into August. Meanwhile, initial jobless claims have remained low and relatively stable, consistent with a low-hire, low-fire labour market.

Taken together, the recent data leave the Fed facing an economy with a resilient labour market but inflation still running above target, placing greater emphasis on the inflation side of its mandate heading into Wednesday's decision.

WARSH:

Warsh's message at Jackson Hole was heavily focused on inflation. He noted that 12-month PCE inflation stood at 3.7%, while the six-month rate was 4.1%, both well above target, and stressed that more than half of PCE components were still rising at rates above 3%. Warsh said underlying inflation trends "have not meaningfully improved", despite better-than-expected readings over the summer, and warned that the Fed has more work to do unless progress towards its 2% objective resumes.

Warsh again placed particular emphasis on price stability, while judging the labour market to be consistent with full employment. On growth, he described the economy as resilient and strengthening, pointing to AI-driven CapEx as an important source of support. He also said he would be "hard pressed" to describe financial conditions as restrictive, citing tight credit spreads, easier bank lending standards and firm equity markets. The combination of resilient activity and elevated inflation therefore gave the Fed little reason to ease, although, as expected, Warsh provided no explicit forward guidance.

At the previous meeting, Warsh also suggested that the tightening in financial conditions provided some comfort that markets were helping the Fed achieve its objectives. The subsequent backup in Treasury yields has tightened conditions further, potentially reducing some of the urgency for the Fed itself to tighten policy.

There has also been considerable discussion around Fed credibility heading into the meeting, with some arguing that Warsh's Jackson Hole rhetoric, followed by the hotter August core CPI print, has raised the bar for the Fed to remain on hold. A hold could therefore risk undermining the consistency of Warsh's recent inflation-focused messaging, particularly after he stressed that the Fed has more work to do unless progress towards the 2% target resumes.

A surprise hold would likely trigger a significant dovish repricing at the front end, with yields falling as markets unwind expectations for near-term tightening. The curve could consequently steepen, potentially sharply if concerns around Fed credibility and the inflation outlook also put upward pressure on term premium and long-end yields.

WALLER:

Governor Waller provided the clearest dovish counterweight ahead of the blackout period, signalling a preference to keep rates unchanged in September if August inflation data showed continued progress. However, he importantly added that he "would consider a hike" if inflation came in hot.

Waller remains relatively optimistic on the inflation outlook, saying he is seeing signs of disinflation and arguing that underlying inflation is performing better than the core figures suggest. While acknowledging "some" upside risk to inflation, he said wage growth is consistent with inflation returning to 2% and argued that policymakers can afford to give disinflation more time, noting that "there is little cost to waiting one meeting."

On inflation measures, Waller said he focuses on core inflation because headline inflation can be noisy and argued that headline and core PCE are not necessarily the best guides to underlying inflation. Regarding August inflation, he declined to specify a precise threshold but said a three-month inflation rate of around 2.8% would be acceptable. Nevertheless, his comments suggested that it may not require a substantial reacceleration in inflation to justify tighter policy.

Pantheon Macroeconomics notes that "the three-month average of annualized month-to-month changes in the deflator, cited by Governor Waller as a key metric, probably dropped to 2.3% in August (again on the new methodology), from 2.7% in May." However, Pantheon cautions that "the residual seasonality in the numbers means that slowdown offers limited reassurance, while the rise in oil prices has worsened the outlook, both for headline and core inflation."

WSJ'S TIMIRAOS:

Following Friday's US CPI report, WSJ's Timiraos highlighted that while the Fed now appears poised to raise rates, historically it has rarely stopped after a single hike. Timiraos noted that the Fed has delivered a one-and-done rate hike only once, in 1997, and cited former Fed Vice Chair Richard Clarida, who said: "If we get a hike next week, certainly we'll get additional ones."

That makes the path beyond September particularly important. Markets are currently pricing just under four 25bps hikes by October 2027, according to CME FedWatch data. Therefore, if the Fed delivers the expected hike on Wednesday, attention will quickly shift from the decision itself towards whether policymakers view it as an isolated adjustment or the beginning of a broader tightening cycle.

SUMMARY OF ECONOMIC PROJECTIONS:

Alongside the rate decision and statement, the Fed will release its updated Summary of Economic Projections. Warsh is expected to refrain from submitting his own projections again, given his distaste for forward guidance. Nonetheless, the projections and dot plot from the other FOMC participants will be closely scrutinised for the Committee's broader views on the economy and the appropriate path for monetary policy.

ING provides the following forecasts for the updated SEPs:

GDP: (exp. = ING Forecast)

• 2026: (exp. 2.2%, prev. 2.2%)
• 2027: (exp. 2.3%, prev. 2.3%)
• 2028: (exp. 2.2%, prev. 2.2%)
• 2029: (exp. 2.2%)
• Longer run: (exp. 2.0%, prev. 2.0%)

Unemployment: (exp. = ING Forecast)

• 2026: (exp. 4.2%, prev. 4.3%)
• 2027: (exp. 4.3%, prev. 4.3%)
• 2028: (exp. 4.2%, prev. 4.2%)
• 2029: (exp. 4.2%)
• Longer run: (exp. 4.2%, prev. 4.2%)

Core PCE: (exp. = ING Forecast)

• 2026: (exp. 3.1%, prev. 3.3%)
• 2027: (exp. 2.3%, prev. 2.5%)
• 2028: (exp. 2.0%, prev. 2.1%)
• 2029: (exp. 2.0%)
• Longer run: (exp. 2.0%)

Federal Funds Rate: (exp. = Bloomberg consensus)

• 2026: (exp. 3.875%, prev. 3.8%)
• 2027: (exp. 3.875%, prev. 3.6%)
• 2028: (exp. 3.375%, prev. 3.4%)
• 2029: (exp. 3.375%)
• Longer run: (exp. 3.125%, prev. 3.1%)