Fed Hikes Rates For First Time Since July 2023, Signals 1 More Hike In 2026

Tl;dr: As the market expected, The Fed hiked rates by 25bps (for the first time since July 2023) despite a trend lower in CPI over the last three months.

Today’s decision was unanimous and the ‘Dots’ signal one more hike in 2026.

The Fed members increased their GDP outlooks, lowered their unemployment forecasts, but hiked their inflation outlooks…

The big question for today of course, assuming they do hike, is whether this is likely to be a “one and done” move.

Quick reminder:

• In 2024, the Powell Fed cut 50bps 2 months before the presidential election with core CPI at 3.3%

• In 2026, the Warsh Fed hikes 25bps 2 months before the midterms with core CPI at 2.4%

*  *  *

Since the last FOMC Meeting on July 29th, a lot has happened amid the supposed Summer doldrums, the dollar is lower while the anti-fiat trades (gold, bitcoin) and crude are all significantly higher with bonds the worst performers…

Stagflationary signals abound as inflation data has surprised to the upside while growth data has surprised to the downside since the last FOMC

But, the market is all-in, betting on a 25bps hike today – 95% versus 70% at the last FOMC, with a lot of noise in between. Dec odds are up from 40% to 70%. The market is pricing in 3.5 hikes into September of next year as the peak of the cycle…

So, before we get the decision, putting things in context, if Warsh were to hold rates here, it would be BY FAR the greatest surprise The Fed has ever hit the market with…

The Fed has historically always gone when market pricing is this high. That’s on top of a substantial hawkish repricing that has recently taken two-year yields to their highest since 2024 and pushed the 10-year through 5% to levels unseen since 2007.

So, what did he do?

Statement

After three dissents (in favor of a hike) in July, the Eccles Building establishment appears to have won the tug of war against The White House, with The Fed hiking rates 25bps (as fully priced in by the market)

• *FED UNANIMOUSLY RAISES BENCHMARK RATE 25 BPS TO 3.75%-4% RANGE

• *FED: RATE HIKE WILL SUPPORT `TIMELIER’ RETURN TO 2% INFLATION

Dots

In June, 9 members saw at least 1 rate-hike in 2026:

• 3 hikes – 1 (Jun)

• 2 hikes – 5 (Jun)

• 1 hike – 3 (Jun)

• No rate change – 8 (Jun)

• 1 cut – 1 (Jun)

Now in September, with 1 hike in the books, these are the number of hikes/cuts left in 2026

• 2 more hikes – 4

• 1 more hike – 12

• No rate change – 2

• No one sees rate-cuts

So the median dot suggest one more rate hike in 2026…

1 member sees four rate-cuts in 2027 and 3 see 2 cuts

• 1 hike in 2027 – 8

• No rate-change in 2027 – 6

• 2 cuts – 3

• 4 cuts – 1

Only 18 of 19 officials submitted their ‘dots’ with some suggesting Warsh himself did not contribute again.

SEP

The Fed members increased their GDP outlooks, lowered their unemployment forecasts, but hiked their inflation outlooks…

Full Redline

Key changes:

• Addition of “domestic spending has been resilient”

• Capital investment reduced from “strong” to “robust”

• Adds that “Today’s policy action will support a timelier return to the Committee’s 2 percent goal”

The big question for today of course, assuming they do hike, is whether this is likely to be a “one and done” move.

We haven’t seen one of those this century so far.

Jim Reid at Deutsche Bank catalogues that there were a few of those in the 1980s and 1990s.

Outside of them, “the shortest cycle on record remains the four hikes of 1986-87.”