What is the Fed's next move? The data behind the September 16 decision

Where policy stands going into the meeting

The Federal Open Market Committee last met July 28–29. It held the target range at 3.50% to 3.75% by a 9–3 vote. All three dissenters, Beth Hammack, Neel Kashkari and Lorie Logan, voted for a quarter-point increase. The statement said inflation "remains elevated relative to the Committee's 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy."

The June projections already leaned that way. The median official expected the federal funds rate to end 2026 at 3.8%, which implies one quarter-point hike from the current range. Nine of the 18 participants placed their 2026 dot above today's midpoint, eight left it unchanged, and one pencilled in a cut. September is a projections meeting, so Wednesday brings a new set of dots.

Fed Chair Kevin Warsh used his Jackson Hole speech on August 28 to raise the bar for staying put: "We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed." He also said he was "committed to a discipline, not to a decision," which leaves the call to the data that has come in since.

What the inflation data says

Consumer prices rose 0.4% in August and 3.4% over the year, according to the Bureau of Labor Statistics. Excluding food and energy, the core index rose 0.3% on the month and 2.4% over the year.

The Fed's preferred measure, the PCE price index from the Bureau of Economic Analysis, rose 0.2% in July and 3.7% over the year. Core PCE also rose 0.2% on the month, and 3.3% over the year.

Producer prices for final demand rose 0.4% in August and 5.4% over the year. Excluding foods, energy and trade services, they rose 0.3% on the month and 4.7% over the year.

Headline CPI came in one tenth above the 3.3% consensus in FactSet's survey. Energy explains most of the gap between headline and core. The energy index is up 16.3% over the year and gasoline is up 27.4%. BLS says gasoline alone accounted for more than a third of August's monthly increase. Airline fares, a fuel-sensitive service, are up 23.4%.

The case against a hike, and why markets are discounting it

Core CPI is the strongest argument for waiting. At 2.4% over the year it matched forecasts and is not far above the Fed's 2% goal. Shelter, the largest core component, is running at 3.0%. If the inflation problem is gasoline and jet fuel tied to the conflict in the Middle East, a rate increase does little to the cause and adds to borrowing costs.

Three things weaken that argument for this committee.

First, the Fed's own gauge is higher. Its 2% target is set in terms of the PCE price index, and core PCE was 3.3% over the year in July, the same figure the June median projected for all of 2026.

Second, core CPI accelerated, rising 0.3% in August after 0.2% in July. The test Warsh set out at Jackson Hole was about direction and speed as well as level.

Third, pipeline prices are rising faster. Producer prices excluding food, energy and trade services are up 4.7% over the year. Diesel rose 24.1% in August and truck freight rose 2.0%. Those costs reach consumer prices with a lag.

Jobs data no longer give the committee a reason to wait. The August employment report showed payrolls up 162,000, unemployment steady at 4.1%, and average hourly earnings up 3.1% over the year. July, first reported as a loss of 23,000 jobs, was revised to a gain of 21,000. Our August 10 essay on the three hike dissents described that weak July print as the market's best argument against tightening. The revision removes most of that argument.

What CME FedWatch is showing, and how to read it

The CME FedWatch Tool converts 30-day fed funds futures prices into probabilities for each possible outcome at an upcoming meeting. It measures what traders are pricing. Officials decide separately, and the figure can swing sharply around a single data release.

Those odds have moved a long way in three weeks. After Warsh's Jackson Hole speech, Spectrum News reported FedWatch odds of a September hike at 57.5%. By Thursday, September 10, CBS put the figure at about 70%, and it rose to nearly 90% after Friday's CPI report.

At least two forecasters, EY-Parthenon's Greg Daco and Nationwide's Kathy Bostjancic, changed their calls from a hold to a quarter-point hike after the data. Capital Economics expects a second increase in December and a third in March 2027.

What Treasury yields are saying

Treasury yields moved with the futures. On July 29, the day of the last decision, the two-year yield was 4.22% and the 10-year was 4.67%. On August 27, the day before Jackson Hole, they were 4.20% and 4.67%.

After Warsh spoke on August 28, the two-year rose to 4.34%. It reached 4.56% after the producer price report on September 10 and 4.63% after the CPI report on September 11, when the 10-year closed at 4.96% and the 30-year at 5.35%.

The two-year, the maturity most tied to expected Fed policy, has risen 43 basis points since the day before Jackson Hole. On September 11 the three-month bill yield reached 4.07%, above the 3.75% top of the current target range, a level consistent with traders expecting at least one increase.

Mortgage rates have followed. Freddie Mac's average 30-year fixed rate was 6.76% in the week of September 10, up from 6.71% a week earlier and 6.35% a year ago.

How stocks have repriced

Rates are only one input to stock prices, so sector moves can show a pattern without proving a cause. Since late August the pattern fits a market preparing for tighter policy and higher energy costs. The figures below are the median close-to-close return of S&P 500 constituents in each sector, from the stocks-llm catalog's delayed daily closes.

From August 27 to September 11, energy was the only sector with a positive median return, at +2.0%. Utilities fell 1.3%, financials 1.6%, and both technology and communication services 1.7%. Real estate fell 3.1%, health care 3.8%, consumer staples 4.1%, materials 4.3%, industrials 4.7% and consumer discretionary 4.9%.

Measured from the July 29 decision, the spread is wider. Energy is up 9.7% and technology 7.2%. Real estate, one of the sectors most exposed to borrowing costs, is down 8.5%, the weakest of the eleven. Consumer discretionary is down 7.5% and utilities 6.6%.

On CPI day itself, technology led with a median gain of 1.95%, and utilities were the only sector with a negative median.

What to watch on Wednesday

Four details released alongside the decision will say more about the path after September.

Start with the vote. In July three officials dissented in favour of a hike, so a hike that draws dissents in favour of holding would show the committee split the other way.

Then the dots. The June median for 2026 implied one hike. A new median near 4.1% would signal a second increase this year, in line with the Capital Economics forecast.

The inflation projections matter as much. In June the median saw core PCE at 3.3% for 2026 and 2.5% for 2027, and an upward revision to 2027 would mean officials see the energy shock spreading into underlying prices.

Finally, listen for how Warsh describes energy at the press conference. Treating gasoline as a passing supply shock points to one move. Talk of second-round effects in services and wages points to more.

After Wednesday, the next inputs are the September CPI report on October 14 and the FOMC meeting on October 27–28.

Researching rate-sensitive companies with stocks-llm

stocks-llm returns dated, sourced company lists, which can show how individual companies line up against a higher-rate backdrop.

The highest dividend yield screen ranks catalog companies by their stored yield, which income investors now weigh against a two-year Treasury near 4.6%.

The financials with the highest return on equity screen shows which banks and insurers earned the most on their capital going into a possible hiking cycle.

Asking for homebuilders ranked by lowest debt to equity opens a list of US homebuilders sorted by leverage, a starting point when 30-year mortgage rates are near 6.8%.

Every figure in those results carries its source and as-of date. None of it is a recommendation.

This article is for information only and is not financial or investment advice. Market prices and probabilities cited are as of the dates stated and change quickly.