Hawks Doves Federal Reserve September 2026 3

Hawks & Doves - Federal Reserve - September 2026

Federal Reserve Recap JULY MEETING: The FOMC left rates unchanged between 3.50-3.75%, as expected, though the decision drew three dissents, with regional Presidents Logan, Hammack and Kashkari each calling for a 25bps hike (the three in April voted against the Committee retaining an easing bias in the policy statement; that bias has since been removed under Chair Warsh). The statement was largely unchanged from June, offering no explicit forward guidance, and the Committee reiterated its commitment to delivering on price stability. The Fed continues to describe activity as expanding at a solid pace, noting that strong productivity growth and capital investment, steady job gains in line with workforce growth, and an unemployment rate that are little changed. It is worth noting that under Chair Warsh, the absence of forward guidance means each meeting is effectively live. Markets reacted dovishly to the announcement, with participants unwinding much of the hawkish positioning that had built-up ahead of the meeting; prior to the announcement, money markets were pricing around one-third probability of a hike. Ahead, markets now assigning around two-thirds probability of a hike at the September meeting, picking up from the prior weeks’ 50/50-ish pricing. The reaction also saw a widening of the Treasury yield curve, with the short-end seeing lower yields and the long-end seeing higher yields; some analysts explained this as a function of the Fed being more prepared to use more active balance sheet policy ahead, making it one of the primary policy tools (rather than operating in the background, as in current policy); some have suggested that this places less of a need to use the FFR target as the main policy tool, potentially allowing the Fed to tighten conditions without the need for aggressive rate hikes. Fed's Kashkari said he dissented in favour of a 25bps rate hike, arguing that successive supply shocks and data- centre investment risk entrenching inflation. He prefers incremental tightening, which would allow the Fed to pause if inflation fades while avoiding the need for bolder action if price pressures persist. Fed's Hammack said policy is not restrictive enough and that the Fed should act now to lower inflation, with the stable labour market allowing policymakers to focus on price pressure

MINUTES RECAP: The FOMC Minutes were largely as expected, as they noted that most participants at the July confab supported keeping interest rates unchanged, while several favoured an increase, as we know due to the three hawkish dissenters. Within those dissenters, a few participants judged doing so would likely help forestall the need for further hikes. Most participants assessed higher rates would likely be necessary if inflation did not fall, but that is a pretty consensus view given recent rhetoric and the importance the Committee have stressed of getting inflation back to target. Almost all FOMC members agreed it was appropriate to retain the policy statement affirming FOMC 'will deliver price stability', but no caveat was issued into what the others saw or the reasoning. Fed staff economic outlook showed inflation outlook was similar to one prepared for June meeting, but economic outlook was 'a touch weaker'. On the meeting schedule, Chairman Warsh said six scheduled meetings per year, held roughly every two months, would allow more information to accumulate between meetings, but no decision was made and Warsh indicated no change to the 2026 schedule. All in all, the latest Minutes were dwarfed by recent data, which has no doubt been dovish and shifted money market pricing to favour a hold instead of a hike. One of the unknowns remains the US/Iran war. Nonetheless, Pantheon Macroeconomics notes, as things stand, it is unlikely any other FOMC members will be joining the three hawks, and they continue to think that a majority of members will vote to keep policy unchanged through the fall and winter, as the labour market stays weak and domestically-generated inflation continues to cool.

Note, when a FOMC member has "(not spoken)" next to their name, it means they have not made any…