2026 september flash macro FOMC

Flash Macro Update U.S. FOMC | September 2026

Henry H. McVey Head of Global Macro, Balance Sheet & Risk, CIO of KKR’s 1 How are we thinking about the September FOMC and markets? The Fed raised interest rates by 25 basis points on Wednesday, consistent Balance Sheet with our expectations and with our view that this is an adjustment cycle, not a full-blown tightening cycle like 2021. In fact, we continue to see these hikes Dave McNellis largely as a normalization of the ‘emergency cuts’ put in place towards the Managing Director, end of the Powell regime. Co-Head of Global Macro and Head of Importantly, post the meeting, we were struck by how closely both the Portfolio Construction Fed’s updated outlook and Chair Warsh’s remarks aligned with the core and Multi-Asset elements of KKR’s Regime Change framework. As a reminder, our Regime Strategies for Private Markets Change thesis rests on a more persistent backdrop of elevated nominal GDP growth and core inflation, including a Core CPI run-rate closer to 2.5% versus Brian Leung Director, U.S. Macro 1.5-2.0% pre-pandemic. We believe this backdrop reflects four structural forces: 1) persistent fiscal deficits; 2) graying demographics; 3) heightened Miguel Montoya Associate, U.S. Macro geopolitics, including more resilience-oriented capital spending; and 4) an at times bumpy energy transition.

Against that backdrop, we are sticking with our call for two additional hikes, in December and March, versus the FOMC’s current expectation for just one more. Maybe more importantly, we now expect the Fed to hold rates at 4.375% through early 2029, versus 2028 previously. The key point is that the FOMC itself no longer expects inflation to return fully to target until 2029. In our view, moderately restrictive rates alongside lingering inflation and resilient nominal growth argue for a higher for longer policy setting.

We are also modestly increasing our 10-year Treasury 3. Chair Warsh appears to be moving towards the yield targets, to 5.1% at year-end 2026 from 5.0%, and hawkish end of the Committee. During the press to 4.9% at year-end 2027 from 4.7%. We continue to conference, Warsh said he had been “hard pressed to believe that investors at the long end of the curve find evidence that monetary policy is restrictive” and will demand a healthy level of term premium in an characterized the September hike as removing “a dose environment of elevated nominal growth, large fiscal of accommodation.” We think this framing is important. deficits, and ongoing competition for capital. Nominal GDP growth remains well above nominal interest rates, a relationship we believe this Fed is OUR TAKEAWAYS FROM THE SEPTEMBER FED watching closely. MEETING y GMAA take: There were no dissents to the 1. Elevated nominal GDP growth,, not just elevated September hike, but there is clearly still some debate inflation, is becoming a more important part of the around how far and how quickly the Fed should Fed’s decision making. Chair Warsh highlighted three move. As noted above, we think the SEP forecast for forces keeping rates elevated: 1) resilient and reac- just one additional hike is too low. At the same time, celerating economic growth; 2) renewed geopolitical we do not expect the Fed to embark on a materially pressures; and 3) pronounced competition for capital more aggressive tightening cycle unless core inflation associated with the AI capital-spending boom. moves sustainably above 3%, which is not our base y GMAA take: This framing is very consistent with case. our Regime Change thesis. We believe this cycle WHAT DOES THIS MEAN FOR OUR FORECASTS? is increasingly defined by elevated nominal GDP, not just elevated inflation. Moreover, we think the y We maintain our call for two additional hikes, forces supporting nominal growth remain powerful, taking the policy rate to 4.375%. We continue to including robust capital spending, improving believe the ‘dot plot’ is too benign given the structural productivity, and heightened geopolitical investment. forces supporting nominal GDP growth. That said, The FOMC appears to be acknowledging this we are not forecasting an extended hiking cycle resilience as well, with…