Futures markets are pricing an 87% probability that the Federal Reserve raises its benchmark rate a quarter point when its meeting ends on September 16, the first increase since July 2023. Hotter-than-expected inflation data and oil above $100 a barrel have flipped economists from expecting a hold to expecting a rate hike, squeezing Fed Chair Kevin Warsh, whom President Donald Trump picked with the explicit expectation he would cut rates.
Fed policymakers are set to announce their decision at 2 p.m. EDT on Wednesday, and financial markets are betting heavily they will lift the benchmark rate to a 3.75%-4.00% range and signal further tightening ahead. The CME FedWatch Tool has tracked the odds in an 83%-93% range heading into the meeting, and prediction markets Kalshi and Polymarket point the same direction.
Inflation and oil flip the consensus
A week earlier, most economists expected the Fed to hold rates steady. That changed after U.S. consumer price inflation excluding energy and food rose 0.3% last month, the Bureau of Labor Statistics reported. Brent crude also crossed $100 a barrel amid renewed hostilities in the Middle East. A poll taken after the inflation print found 85% of economists now expect a 25 basis point hike, and a narrow majority also predicted at least one more increase before the end of March 2027.
Warsh caught between Trump and the bond market
Warsh, who has run the Fed's rate-setting committee since May, faces pressure from both sides. On Monday, the yield on the 10-year Treasury note hit 5%, reflecting expectations for high oil prices and a Fed hike. According to Bank of America analysts: "hike or risk large bond spike".
Three regional Fed presidents — Cleveland's Beth Hammack, Dallas's Lorie Logan and Minneapolis's Neel Kashkari — already dissented in July in favor of raising rates. The effective federal funds rate sits at approximately 3.63% now, after the Fed cut rates six times before this meeting, making any move upward a meaningful pivot in the policy narrative.
Sources: Investing.com, Crypto Briefing
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