A rate hike is now a done deal, as expected in this corner.
According to CME Fedwatch the betting odds are 85.4 percent that the Fed hikes rates a quarter point on September 16, up from 72.4 percent yesterday, and as low as 40 percent within the past two weeks.
My estimate for about a month was the Fed would hike unless the August jobs report was bad and the CPI report today was favorable. Neither happened.
October Rate Hike Odds
There is a 32.1 percent chance the Fed hikes rates in September and again on October 28.
That’s possible, but color me skeptical. The Fed is not going to want to hike that close to the midterm election on November 3.
Political Realities May Force the Fed to Hike in September
On August 31, 2026, ahead of the jobs report, I commented Political Realities May Force the Fed to Hike in September
It will be a stretch for the Fed to pause for many reasons, not just the CPI.
The CPI announcement on September 11 and the Jobs report on September 4 are going to determine whether or not the Fed hikes or remains on pause.
The only measure that remotely supports a pause is core CPI. But after being reliant on PCE for decades, that would be quite the switch.
There is nothing about month-over-month details that suggest the Fed should pause.
The CME Fedwatch rate hike odds are 59.7 percent. The odds jumped from under 40 percent on Fed Chair Kevin Warsh’s Jackson Hole speech on August 28.
Odd Too High or Too Low?
Because I expect the Cleveland Fed to be close on its inflation nowcast, I believe those odds favor a rate hike.
A decision to hike also depends on the jobs report on Friday September 4. If the report is OK to strong, the Fed will have more reason to hike.
But even if the report is weak, a headline CPI of 0.4 percent will be hard for the Fed to ignore.
Politics is another huge hurdle that will force a hike sooner rather that later.
The Final Hurdle is Political
While macro indicators including credit and the strong Cleveland Fed Nowcast provide the fundamental backdrop for a rate hike, the final hurdle is purely political and institutional.
Jim Bianco’s tracking model places the FOMC in a rigid 5-5 gridlock, thrusting former Chair Jay Powell out of the background and directly into the role of the ultimate swing vote.
However, treating Powell as a true ‘unknown’ ignores deep-seated institutional inertia. Historically, Powell has fiercely defended committee cohesion and has never dissented against a sitting Chair. For the Fed to project long-term stability under newly minted Chair Warsh, a public fracture between current and former leadership is a line the committee will desperately want to avoid crossing.
But there is sill one more wrinkle to discuss, and that is the election.
The Election
Convening less than two months before the November mid-terms, the FOMC will operate under an intense political microscope.
Historically, the central bank prefers to fade into the background during election cycles to avoid accusations of interference. Dovish voters will undoubtedly attempt to weaponize any minor softness in the September 4 payrolls as an excuse to hold steady and dodge political crossfire.
Yet, under Chair Warsh’s newly minted regime, delaying a mathematically justified hike to appease politicians would represent the ultimate failure of institutional independence.
If the Cleveland Fed Nowcast proves accurate, a hot inflation print will effectively strip away the committee’s political cover. In a fractured Fed of 12 independent voters, hiding behind election-year precedent will no longer be an option.
The Extraordinary Tactical Trap for Warsh
Ignoring politics, the odds of an aggressive policy tightening would be much higher right now.
That political gravity is why we must heavily discount the odds of the Fed executing two distinct rate hikes before voters head to the polls.
This creates an extraordinary tactical trap for Warsh.
If Warsh postpones a hike in September, but the August and September PCE prints are hot, he will be forced to either hike interest rates six days before the election or freeze policy. Hiking would trigger a huge political firestorm but pausing would look entirely partisan in defense of Trump.
Moreover, there is no meeting in November. Delaying necessary policy tightening until December would allow hot inflation to fester for a full quarter, creating a reputational nightmare. In contrast, hiking would create a political nightmare.
Conclusion: The Strategic Imperative for September
The upcoming September meeting represents the Fed’s cleanest and most viable window to execute.
Unless the jobs report is miserable and the CPI is tame, look for Warsh to hike rates in September.
To avoid any look of politics or uncertainty, I think Bianco will be wrong on the number of dissents, say three or less.
Number of Dissents
I am sticking with my August 31, assessment of dissents. Expect one for certain and I expect a maximum of 2 more, possibly 3.
Call it 1-3 dissents with an outside chance of four. In order, I see it as 2-1-3-4.
I will discuss the CPI report that triggered the jump in odds shortly.
Typical Keynesian economic response . . . Raising interest rates is a smoke screen and will only slow the economy which is already in trouble . . . this inflation is not due to an overheated economy this inflation is due to cost push . . . due to rising Energy costs and out of control Government Spending . . . STUPID !
After the election, Trump is going to become the worst possible thing you can be in politics:
Irrelevant.
Ah, he will still have a veto on some things, which can’t be overridden with less than a two-thirds majority, as I understand it – I take it that that means a two-thirds majority in each House. I don’t see you getting that very often.
Fed is irrelevant. Rate hikes do nothing to address this kind of inflation.
The Fed CAUSES inflation. Its job description also includes obfuscating the process. That’s what the economics you get taught in schools is FOR.
As long as they remember the mantra: raise by quarter point, so you can cut by full point later, everything should be fine.
So if inflation is primarily the result of the usual culprits: increasing fuel prices from the Iran War, an incredibly high budget deficit, tariffs and trade dislocation, how does increasing interest rates fix anything? Will slowing down corporate investment fix any of those things?
One thing it does is to compensate savers for the loss of purchasing power of their dollars.
Kalshi has it at 80percent chance. i’m gonna short that, or just go long NO hike at 20, to pay 100. Warsh seems like a true bootlicker just like Bessent. Trump is different. he’s a cult hero with nuts who will do anything for him.
Why would the Fed care about elections? It’s clear that their main job is to control inflation so whether elections are happening or not should be irrelevant. Further, Trump appointed the Walrus so he can’t really complain about any Fed decision.
They have been doing a miserable job of controlling inflation for years now, if they continue to lose credibility, the democratic socialists, when they take control, are going to give the Walrus a hard spanking.
Correct, they shouldn’t. And they didn’t in 2024 when they cut before the election and like the day after. I can only hope they do their primary job though your other statements being spot on as doing a miserable job means the bar is LOOOOOOW for them doing the correct mathematical thing here.
Still, they are hiking. 3 month treasuries already at the 25 bps level today, everyone knows 25 isn’t enough, it should be 50bps. Never should have cut them 75 bps a year ago long before the inflation numbers were at the target.
I guess your turtles are alive and (un)well.
I will gladly take the risk of being called an idiot in five days…
Personally, I do not believe there will be a hike.
If anything, I expect a hold, and I would not entirely rule out a cut, just to please, well… you know who.
Unlike Jerome Powell, who fiercely guarded the central bank’s independence, I simply do not believe the new Fed Chair possesses the fortitude to stand up to Donald Trump’s political pressure.
A cut is indeed idiotic so I will call you one in advance.
But you have a lot of merely delusional company expecting a hold
Your message makes it clear that your faith in Kevin Warsh remains unshakable.
In 5 days we’ll find out!
Has a Fed Chair ever voted against the majority?
I don’t think it is “delusional” to expect a hold. Now, I am not saying you can bet that they will hold. But I wouldn’t be surprised if they decide to not do anything.
You willing to bet on that?
Which “that”?
Anyway, I’ve already placed my bets, so one more won’t make much difference 😉
Trump wanted/demaned/whined for lower rates.
JPow so fiercely guarded the Fed’s independence that he….
lowered rates 75bps Sep and Nov 2025 during Trump’s first 10 months in office…
That’s how much Powell wanted to stick it to Trump! He sure showed him! Sheesh!
It’s like the comment section doesn’t actually follow simple factual moves made by the Fed.
Now Warsh is likely to raise them and you’ll claim he’s a Trump bootlicker.
So Powell lowering them in Trumps 2nd term was really showing Trump how independent they are and the Warsh Fed (he has one vote) is gonna raise them, despite Trump’s dictatorial demands to lower them (other commenters here use that nonsense) and you’ll say Warsh is here doing Trump’s bidding.
Make it make sense.
The Fed is raising rates because the data is demanding it, the timing requires they act before another 2 months (and tanker explosions) pass, and the market is already also warranting it.
Bet on a hold…the market is giving you an entry point on the short-end of the curve to profit if you really believe that. Perhaps that’s how you’ve positioned yourself. Markets are not just saying it’s gonna happen, they are screaming it with their money!
There seem to be several indications that Trump’s hold over all but his zealots is waning; even Warsh can see it. Maybe a half point hike isn’t that outlandish.
Half-point would send a loud & clear message. Trump would go bonkers.
Democrat Calf closed most of their refineries. Now they have to buy and transport diesel from other states
So what? North Dakota doesn’t produce almonds and they have to buy them from other states. Alaska has to import almost all their fruits and veggies from other states. What point are you trying to make?
Fine; it may now well happen. But I remain skeptical. As regards setting policy, Warsh will have to convert from an obvious phoney to a realist in broad daylight. Not too many people in the Republican camp have left the spine to be realists when that means to get savaged by Trump on TS. To be a Republican in good standing nowadays means you have to be either a moron or a phoney; realism is not an option.
I agree about the republican sentiment, however I also believe that the Fed chair can get out voted.
So you think Warsh might vote pause and get out voted, or is it hike and get out voted?
They should hike rates but if they do Trump will have a hissy fit; so I am not so sure.
I personally want to see DJT’s reaction if the FED hikes by 50 basis points but then I have TDS
If he were smart, he’d thank them because mortgage rates would probably drop and that makes news that voters read. Whether their credit card rate is 18% or 18.5% doesn’t affect votes. He is not smart, though, so we can just hope that his reaction would be a fatal heart attack.
If Trump were to have a fatal heart attack, Vance would be a sitting President running for re-election in 2028. That is usually an advantage, a big enough one that you changed your Constitution to prevent any president from running for a third term. So unless you want to face that, you might want to hope that Trump doesn’t have a heart attack.
Well, they did a 50bps hike in September of 2024 and another 25bps post election in November 2024. It’s tiring to hear that they won’t want to do anything in October due to the election given that recent historical backdrop. Well fine, then do 50bps hike in September and get on with solving the issue if you’re truly an independent Fed because fiscal and monetary policy is still far far too loose. That would also end all the blather than Warsh is a Trump lapdog when one could argue Powell shouldn’t have made 175 bps cuts since September of 2024. This comment section thinks Powell really stuck it to Trump (175bps cuts this term) and Warsh is his bootlicker (no cuts and likely a hike a coming). Maybe the Fed is really just the incompetent money-crushing crooks they’ve been since their founding, earning the Fed Uncertainty Principle.
A hike must come. I can hope for 50 but it’ll be a miniscule quarter point and take us way way way back to the soul-crushing levels of…..last October. Oh the gnashing of teeth! <sigh>
Please note you said September and November – Not September and October
True, i was being factual on what happend in 2025 and editorializing on my conclusion that they can act in September and October, positing that October is little different at that point. I think they should act when the data warrants …although your Fed Uncertain Principle holds and they’ll just do whatever they want, be wrong most of the time…because they can’t possibly know what the actual price of credit/money should be.
I don’t think there will be a hike. The Fed will look for some “encouraging” signs in the report that can excuse their inaction.
Besides, Warsh would still be able to look “tough” even when he doesn’t hike the rates, because after all, Trump wants the rates to be cut to zero!
wow a quarter point. That’ll fix it.
If they did a half, 10 and 30 year yields might even go down.
Correct – 50 basis point would lower Long term yields
ha ha ha