Key highlights:
- The odds of a 25-basis-point rate hike have risen above 90%
- This would be the Fed’s first rate increase in over three years
- Fed Chair Kevin Warsh will announce the decision on Wednesday
The Federal Reserve’s policy meeting begins today, with many economists expecting the central bank to raise interest rates for the first time since 2023. This comes as inflation stays above the Fed’s target due to high energy costs.
Odds of Fed rate hike spikes
CME FedWatch data showed that the probability of a quarter-point hike this week has increased to around 92%. Essentially, the market could potentially see the funds rate move to a target range of 3.75% to 4%.
Fed rate target range odds. Source: CME FedWatch tool
This comes as inflation in the U.S. continues to rise. The Consumer Price Index rose at an annual rate of 3.4% in August, while the personal consumption expenditures index was up 3.7% in July. The readings are well above the central bank’s 2% target, which gives the policymakers enough reason to act.
Raising interest rates helps the Fed slow inflation, since higher borrowing costs cause businesses and consumers to pull back on spending.
Some economists opined that this could be the start of more hikes. Brandon Zureick, chief economist at Johnson Investment Counsel, said the high energy prices could lead to more tightening in the future.
“If everything stays the same and energy prices remain elevated and the economy remains pretty strong, there’s good reason to expect maybe another hike or two beyond this week,” he said.
Political pressure builds ahead of the decision
President Trump has repeatedly called on the Fed to lower rates rather than raise them. He shared over the weekend that “the United States is so strong we should be paying the lowest interest rate in the world.”
Meanwhile, his economic adviser, Kevin Hassett, is caught between two stools on the matter. He said on CNN that Trump “100% respects the independence of Kevin Warsh,” while also suggesting on FOX News that the Fed should avoid hiking rates so close to an election.
🇺🇸 Kevin Hassett just told Fed Chair Kevin Warsh to think TWICE before hiking rates this close to the midterms…
On Fox News Sunday, Trump’s NEC director said the Fed has raised rates ahead of an election only a couple of times since 1913, and that staying out of elections is…
— Mario Nawfal (@MarioNawfal) September 13, 2026
Even with that pressure, most analysts expect the Fed to move ahead with a hike regardless. Michael Feroli, an economist at JPMorgan Chase, wrote in a note that Warsh’s recent public comments on inflation have raised the stakes for following through.
“At the end of the day the Chair’s repeated stern warnings on inflation intolerance risk institutional credibility absent some action to back it up,” Feroli wrote.
What a rate hike could mean for markets
Interest rate changes can cause major swings in financial markets. The S&P 500 fell 18% when the Fed last began raising rates aggressively in 2022. This time, however, markets have already priced in the likelihood of a hike, which could limit the shock to prices.
“It would have to be something orders of magnitude more than what the market’s expecting, which at this point we think is fairly unlikely,” Brandon Zureick, Portfolio Strategist at Johnson Asset Management, said.
He advised investors to focus on building diversified portfolios instead of reacting to short-term developments.
“Have a well-diversified portfolio that can withstand different environments, including international stocks, small and mid-cap stocks,” he said. “Steady is always good advice. Don’t necessarily react to short-term news.”
The Fed will announce its decision at 2 p.m. ET on Wednesday, followed by a press conference with Chair Kevin Warsh at 2:30 p.m. The central bank will also release its quarterly Summary of Economic Projections.
Source:: Fed Rate Hike Odds Top 90% as FOMC Meeting Kicks Off Today: What to Expect