Will the Fed hike at its September meeting?

The Federal Reserve's September meeting is shaping up as the clearest hawkish signal since the last rate-hike cycle ended in 2023. Kevin Warsh, who became chairman on May 22, 2026, inherited a target range of 3.50% to 3.75% and has chaired two meetings that left policy unchanged. The third concludes at 2:00 PM ET on September 16, and the market is now pricing a 0.25% hike at 88% probability on both Kalshi and Polymarket, and a hold at just 12 cents. For comparison, CME FedWatch puts the probability of a hike much higher at 92.8%. Either way, any increase would mark the Fed's first rate hike since 2023, and the market is effectively saying a modest, single-step move is the base case.

The bias toward tightening has been building for months. Three of today's voters already pushed for a hike in July, when the committee held rates 9-3, with Cleveland's Beth Hammack, Minneapolis's Neel Kashkari, and Dallas's Lorie Logan dissenting in favor of a quarter-point increase.

Hammack said in August that one move would not be enough on its own to bring inflation down, and Warsh reinforced that stance at Jackson Hole on August 28. He told the audience the Fed must be confident inflation is moving to target "clearly and at sufficient speed", adding, "Otherwise, we have work to do."

At first glance, the August inflation report looks like a counterargument to that view. Core CPI fell to 2.4% year over year, the lowest since March 2021. But the Fed targets PCE, not CPI, and core PCE was running at 3.3% in July, with headline PCE at 3.7%. Warsh himself highlighted a 4.1% figure at Jackson Hole, which is headline PCE annualized over six months. Headline CPI stands at 3.4%, and gasoline prices are up 27.4% from a year ago, keeping inflation pressures visible and giving hawks room to argue that the job is not yet done.

Even so, the 12-cent price on a hold is not entirely baseless. It rests largely on one governor, Christopher Waller. On September 3, he said that if the data over the following two weeks cooperated, he "would be inclined to support holding the target for the federal funds rate at its current setting". Core CPI then moved lower, which arguably satisfies his condition and leaves a narrow path for a surprise hold if he can pull others with him.

That path, however, looks quite steep. Waller is just one governor on a committee that last voted 9-3 in favor of tightening, and no major bank is now forecasting a hold. Goldman Sachs was the last to switch, on September 13, and said the change came primarily from market pricing.

We generally stay away from Fed contracts while the meeting is still weeks out, because at that range there are too many variables to weigh. We have already seen how a hold turned into a hike as new data came out. This is exactly why we sit those weeks out rather than guess at them.

However, with literally hours left, the committee is already in the room, and the arguments are made, and that is the one window where this market has never missed a funds-rate outcome. At 88 cents, 'Hike 25bps' pays 13.64% by two o'clock, and that is hard to leave on the table.