66% odds of a rate hike. September 16 is now the most consequential Fed \
meeting in two years. On Thursday August 28, Federal Reserve Chairman Kevin Warsh stepped to the podium at the Jackson Hole Economic Policy Symposium in Wyoming and did what every investor in the room was dreading: he warned, without ambiguity, that the Fed is prepared to raise interest rates again. Within hours, the probability of a 25 basis-point hike at the September 15 to 16 meeting jumped from roughly 30% to 66%, its highest since early 2025. Markets that had spent most of 2026 expecting the next Fed move to be a cut abruptly repriced. The September decision, once considered a formality, is now a coin flip.
"We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.
"Kevin Warsh · Fed Chairman · Jackson Hole · August 28 2026
The inflation numbers that pushed Warsh to the podium.
The Fed's preferred measure of inflation, the PCE price index, is running at 3.7% over the past 12 months and 4.1% over the most recent six months. Both are well above the Fed's 2% target. Warsh noted that "more than half of goods and services tracked by the government have seen price increases of 3% or higher" in the past year. He said "this summer's readings were better than expected" but added bluntly: "they do not tell me that underlying trends have meaningfully improved." The Fed holds rates at 3.50 to 3.75% after cutting from a peak of 5.25 to 5.50% in 2023 to 2024. The cuts came in two waves: three in late 2024, then three more in 2025, each 25 basis points, totaling six cuts and 175 basis points of easing. The last cut landed in December 2025. Since then, five consecutive meetings have ended in a hold. Three FOMC members dissented in favour of a hike at the July 2026 meeting alone.
Fed funds rate today
3.50 to 3.75% (held since December 2025)
Peak rate (July 2023)
5.25 to 5.50%, a 22-year high
Fed inflation target
2.0% PCE
PCE inflation 12-month
3.7% (August 2026)
PCE inflation 6-month annualised
4.1% (August 2026)
Probability of September hike (CME FedWatch)
66% as of September 1
FOMC members who dissented for a hike in July
3 of 12
Credit: Federal Reserve Bank of St. Louis (FRED). The federal funds rate \
from 2020 to today: from near zero during the pandemic, to a 22-year high of 5.5% in 2023, then six cuts to 3.5 to 3.75%, and now potentially heading back up.
What a 25 basis-point hike means on September 16.
A quarter-point hike would lift the target range to 3.75 to 4.00%. The immediate effects are felt in borrowing costs tied to the prime rate, which moves in lockstep with the Fed: currently 6.75%, it would rise to 7.00%. For mortgages the relationship is indirect: 30-year fixed rates already sit around 6.68%, driven more by 10-year Treasury yields than the overnight rate. But a hawkish Fed signals higher Treasuries, which pulls mortgages up toward 7%. On a $400,000 loan, that is roughly $56 more per month, or $672 a year. High-yield savings accounts and CDs would nudge higher, rewarding savers slightly. For stocks, higher rates mean higher discount rates on future earnings, which generally pushes valuations down. The Dow fell 370 points on September 1 partly on hike fears, even as it posted its fifth straight winning month.
The force that made hiking thinkable again: Iran.
There is a single external event behind much of the 2026 inflation re-acceleration, and it is not domestic. The U.S. military campaign against Iranian nuclear sites this summer, and Iran's partial closure of the Strait of Hormuz, sent oil prices surging. Energy costs have cascaded through transportation, food and goods prices. Barclays now projects two more hikes this year, in September and December, adding another 50 basis points. J.P. Morgan Wealth Management has penciled in at least the September move. Nine of the Fed's 18 officials projected at least one hike for 2026 in the June Summary of Economic Projections. None of them projected a cut before early 2028. The Fed that was cutting rates as recently as December is now the Fed that Warsh described in his closing line: "No excuses."
"Warsh presented a clearer picture of a Fed that remains laser-focused on returning inflation to target and is prepared to raise rates if progress stalls.
"Seema Shah · Chief Global Strategist · Principal Asset Management · August 28 2026
