DB Sept FOMC recap Removing a dose of accommodation helps the inflation go down

Economics Date 16 September 2026 Fed Notes

Sept FOMC recap: Removing a "dose of accommodation" helps the inflation go down Matthew Luzzetti, Ph.D. Chief US Economist • The Fed delivered on our long-held expectation of a 25bp rate hike at the September FOMC meeting and signaled that more action is likely needed Brett Ryan to tame inflation. The dot plot skewed more hawkish than we anticipated. Senior US Economist There was a strong consensus around another hike this year, with 16 officials anticipating additional tightening in 2026. Next year’s Justin Weidner projections showed most officials split between 50bps and 75bps of total Economist tightening. The long-run dot also edged higher to 3.2%

• Unsurprisingly, Chair Warsh’s press conference did not provide forward Amy Yang guidance. He framed the rate hike as aimed at removing a “dose” of Economist accommodation against a backdrop of limited evidence that policy is restrictive. Relative to July, higher rates were supported by stronger growth, sturdier labor market conditions, sticky inflation, and intensifying upside risks to prices from geopolitical developments.

• The signals from today’s meeting reinforce our existing forecast. We continue to expect the Fed to deliver 50bps more of tightening, with 25bp increases in December and next March. This action would unwind the risk management rate cuts the Fed delivered last year. Risks to the view are two-sided. If recent data trends continue, we see scope for the Fed to hike again in October. Dovish scenarios include a sharper tightening of financial conditions and/or an unexpected softening in inflation or the labor market.

FOMC statement There were several changes to the statement, all of which were in support of the Committee’s decision to increase the target range of the fed funds rate by 25bps to 3-3/4 to 4 percent. The changes to the second paragraph reflect an optimistic view on growth and the labor market, which was reiterated in Chair Warsh’s comments during his press conference. Domestic spending was characterized as “resilient” despite uncertainty about geopolitical developments, driven by “strong” productivity growth and “robust” capital investment. The FOMC maintained their view that the labor market is in rough balance, with job gains keeping pace with the workforce and little change in the unemployment rate.

The more important changes, however, were to the third paragraph focused on inflation. In that paragraph, today’s rate hike was framed as “support[ing] a timelier return” to the 2 percent target. The statement also removed the reference to supply shocks as part of the reason for above-target inflation,

Deutsche Bank Securities Inc. IMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. UNTIL 19th MARCH 2021 INCOMPLETE DISCLOSURE INFORMATION MAY HAVE BEEN DISPLAYED, PLEASE SEE APPENDIX 1 FOR FURTHER DETAILS.

potentially implying Fed officials are no longer willing to look through their impact on inflation. Both of these changes emphasize the hawkish shift in Fed officials’ views, mirrored in their economic and policy projections released alongside the statement.

Summary of Economic Projections (SEP) The SEP shifted in a notably hawkish direction reflecting a stronger growth and labor market outlook over the intermediate term alongside a notable upshift in the median policy rate forecast. Regarding the latter, while the 25bps increase in the median rate forecast for 2026 to 4.125% was widely expected, the 50bps increases in the 2027 and 2028 median projections to 4.125% and 3.875%, respectively, were more than we had anticipated.

Importantly, the distribution of the dots between 2026 and 2027 suggest stronger support for a quarterly pace of rate hikes – in line with our current view (see “Fed Notes: Sept FOMC preview: The action after Jackson “). Case in point, only four officials were above the median for 2026 versus eight who projected 75bps of rate hikes in total through 2027. The newly added 2029 rate projection showed another step down to 3.625%. Lastly, the long-run fed funds forecast also edged up another tenth to 3.2% as we had anticipated, with the average rising further to 3.3%.

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