US Daily September FOMC Recap Hawkish Dots Show Two Hike Baseline

Economics Research 16 September 2026 | 8:37PM EDT

US Daily: September FOMC Recap: Hawkish Dots Show Two-Hike Baseline; Adding an October Hike

n The FOMC raised the funds rate by 25bp to 3.75-4% today. While the hike was David Mericle | widely expected, the meeting was more hawkish than we expected in a few ways. Goldman Sachs & Co. LLC First, a 16-2 majority projected at least one more hike this year, and there were no dissenting votes against today’s hike. Second, the median funds rate projection remained quite elevated through 2029, and the median neutral rate dot rose from 3.06% to 3.25%. Third, Chairman Warsh described the hike as having “removed a dose of accommodation” three times. n We now expect the FOMC to deliver a second 25bp hike in October, a change from our previous expectation that September would be the only hike. We think October is the most likely time for the next move because it is most natural to deliver hikes that the FOMC presented today as supporting “a timelier return” to the 2% target at consecutive meetings. We have kept our forecast for the terminal rate unchanged at 3.25-3.5% by adding to the September and December 2027 rate cuts we already expected a third 25bp cut in March 2028. n Additional hikes are possible but not our base case. One reason is that our forecast for core PCE inflation remains below the median FOMC participant’s forecast at 3.2% (vs. 3.4% for the FOMC) in 2026 Q4/Q4 and 2.2% (vs. 2.5% for the FOMC) in 2027 Q4/Q4. Some of the gap for 2026 could come from a reluctance on the part of some FOMC participants to pencil in a downward revision from methodological revisions that will be implemented later this month, which we estimate will be worth -0.2pp on the year-over-year rate, until the impact is clear.

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September FOMC Recap: Hawkish Dots Show Two-Hike Baseline; Adding an October Hike

The FOMC raised the funds rate by 25bp to 3.75-4% at its September meeting today. Chairman Warsh attributed the decision to hike primarily to stronger labor market and activity data, “inflation summer trends [that] weren’t passing the test,” and the effect of geopolitics on commodity prices.

The meeting was more hawkish than we expected in a few ways. First, a 16-2 majority projected at least one more hike this year, with four participants projecting two more hikes this year, against our expectation that a narrow majority would show no additional hikes. There were no dissenting votes against today’s hike, against our expectation of one dissent.

Second, the median funds rate projection remained quite elevated all the way through 2029, where it remains at 3.5-3.75%, noticeably above the median neutral rate projection (Exhibit 1). In addition, the median neutral rate estimate rose more than we expected from 3.06% to 3.25% (vs. our forecast of 3.19%), a larger jump than is usually seen at a single meeting.

Third, Chairman Warsh described the hike as “removing a dose of accommodation” three times, which might imply that he thinks that the neutral rate is above the 3.5-3.75% range where the funds rate stood before today, though he declined to give a neutral rate estimate and said that the neutral rate does not have any “operational effect on decisions that we make today.” He also said that other FOMC participants “widely shared” the view he had previously expressed that broad financial conditions are not restrictive.

Exhibit 1: A Hawkish Set of Dots Showed a Two-Hike Baseline for 2026, a Median Funds Rate Projection That Remains Elevated at 3.5-3.75% in 2029, and a Higher Median Neutral Rate Projection of 3.25%

Percent Percent Fed Funds Rate Path Implied by the Median Dots 4.875 4.875

4.625 September FOMC 4.625 June FOMC 4.375 4.375

* Longer Run * Projections for 2029 were introduced in the September Summary of Economic Projections.

Source: Goldman Sachs Global Investment Research

We now expect the FOMC to deliver a second 25bp hike in October, a change from our previous expectation that September would be the only hike. We…