We revise our forecast and expect a September hike after August CPI 2026 09 14

Macro & FICC Research Fed Preview 14 September 2026

We revise our forecast and expect a September hike after August CPI August CPI surprised on the upside for a 0.3% m/m increase, raising some question marks about the degree of improvement in the underlying inflation trend. Given the strong emphasis within the Fed on the monthly data, we shift our forecast and now expect a 25 bp hike in September. Upward pressure on the oil price after renewed escalations in the conflict in the Middle East is an upside risk going forward. The market prices nearly 90% for a September hike and we think an unchanged rate would be badly received by bond markets.

Policy rate expected to be raised by 25 bp to 3.75-4.00%.

CPI disappointment points to another too high core PCE but the upcoming revision is an uncertain factor

Market prices 90% (22 bp) for a September hike

Bloomberg consensus predicts unchanged rates, but analysts are evenly split

New forecasts but Warsh will not use them as a signaling tool

Inflation trends need to improve by year-end for the Fed stop at one hike

Rate hike in September is now the main scenario

Market pricing for a September hike moved from almost 70 to nearly 90% after the August CPI data. The y/y rate for core CPI declined further, from 2.5% to 2.4%, but the monthly increase came in above expectations at 0.3%, though on the lower side (0.29%). The details were not all bad; volatile components, including tourist services, contributed to the faster price increases while goods prices were marginally lower than expected (read more about the August CPI here). Our estimate for the Fed’s key measure core PCE points to another 0.3% m/m increase, though the upcoming revision of this data on 30 September is an uncertain factor. Methodological changes are expected to lower the PCE by at least a couple of tenths of percentage points, which will still leave the core PCE at an elevated around 3.0% y/y rate.

This puts the Fed under pressure to deliver a hike in September to bolster its inflation credibility. We are now changing our forecast for the 15-16 September meeting to a 25 bp hike to a range of 3.75-4.00%. Higher energy prices, back above USD 100/bl, is an upside risk going forward. Waiting until the next meeting on 27-28 October could put the Fed in a difficult situation, given the proximity to the midterm elections on November 3. Analysts in Bloomberg's consensus survey are divided, but nearly 50 percent

Fed Preview 14 September 2026 2

expect a hike on Wednesday. Also, a relatively large portion of the responses in the survey were provided before the August CPI. Most of the responses provided after the data forecast a hike.

Fed Chair Kevin Warsh has been very clear that it is the responsibility of the Fed to make sure that inflation returns to target. He has been equally clear that the Fed should not signal its next step. This means that the Fed should now be data dependent and take its decisions on a meeting-by-meeting basis. Inflation data during the fall will be key for whether the Fed can stop at one hike to safeguard credibility. We continue to see scope for renewed disinflation once the temporary effects from tariffs, energy and, to some extent, AI on IT, pass. Whether the Fed will get enough evidence on this in the coming months is uncertain, however. For now, we expect the Fed to stop at one credibility-strengthening rate hike in September and that the next step will be a rate cut in fall 2027, followed by another cut in early 2028. However, if underlying inflation trends have not improved by the December meeting, and the economy remains resilient, the Fed may have no choice but to deliver another, and final, rate hike in December. Continued upward pressure on yields will work in the other direction, with markets now doing some of the job for the Fed. Markets are already pricing a succession of rate hikes until mid-year 2026 and the Fed must now hope that delivering a hike could calm market doubts of the Fed’s willingness to do what it takes.

The Fed is split but tolerance for inflation above target is running low

Three regional Fed presidents – Beth Hammack, Lorie Logan and Neel Kashkari – voted for a hike at the July…