The Fed meets Wednesday with an 85% chance of the first hike since 2023
Chair Kevin Warsh's FOMC statement and projections land at 2 p.m. ET Wednesday, September 16, after August CPI rose 0.4% and futures priced about an 85% hike. Week of Monday, September 14 through Friday, September 18.
The first U.S. rate increase since July 2023 is the futures market's base case after Friday's inflation report. In a Reuters poll completed September 4-9, before that report, 65 of 93 economists still expected the Federal Reserve to hold the federal funds target at 3.50% to 3.75%. After the report, Reuters said traders of short-term interest-rate futures were pricing about an 85% chance the committee raises that target on Wednesday to 3.75% to 4.00%.
The futures market and the economists disagree about Wednesday, and the disagreement dates from Friday's CPI. The Summary of Economic Projections and Chair Kevin Warsh's 2:30 p.m. ET press conference are where that split gets closed. They will show whether a hike into a slowing consumer and housing market is a one-move adjustment or the start of a new cycle, and they will do it against a Treasury market that has already moved. The 10-year yield finished Friday at 4.96%. The iShares 1-3 Year Treasury Bond ETF SHY closed at $81.37, 3 cents above its 52-week low. The iShares 20+ Year Treasury Bond ETF TLT closed at $80.87, 20 cents above its own.
Wednesday's 2 p.m. decision, and the dots behind it
The FOMC meets Tuesday and Wednesday. The statement prints at 2 p.m. ET on September 16; the projections come with it. This is a scheduled SEP meeting, the first set of forecasts since June.
The committee has held the 3.50% to 3.75% range through all of 2026. On July 29 it voted 9-3 to keep that range, with Beth Hammack, Neel Kashkari, and Lorie Logan preferring a quarter-point increase. A hike on Wednesday would not come from nowhere inside the room. It would still be the first increase since the cycle peaked in July 2023.
August consumer prices are why the futures price flipped. The CPI-U rose 0.4% in August after 0.1% in July, and 3.4% over the year. Core prices, all items less food and energy, rose 0.3% on the month and 2.4% over the year. Gasoline jumped 3.9% and accounted for more than a third of the monthly increase, a print that is easier to read with West Texas Intermediate still at $100.05 a barrel as of Friday's settle.
What the SEP adds is the path after this meeting: how many officials write in another increase this year, where they put 2027, and whether Warsh, in office since May 22, treats Friday's gasoline-heavy report as a supply shock or as evidence that underlying inflation is not moving toward 2% at sufficient speed. The 2-year yield is already 4.63%, above a 4.00% upper bound. The 30-year is at 5.35%. The curve does not need a surprise hike to stay tight. It needs the committee to say how much more it wants.
TLT fell 1.5% over the five sessions through Friday. SHY fell 0.4%. Duration is not waiting for 2 p.m.
Long Treasuries sold off ahead of Wednesday
- TLT · 80.87
- SHY · 81.37
Retail sales at 8:30 a.m., then housing after the close
The last major demand print before the decision arrives six hours earlier. The Census Bureau releases August advance retail sales at 8:30 a.m. ET Wednesday. July sales were $763.6 billion, down 0.6% from June. A second weak month would give holdout officials a growth argument.
Housing is the other real-economy test, and it runs on a different clock. Privately owned housing starts fell 12.4% in July to a 1.239 million annual rate. Building permits, which lead starts, rose 5.0% to 1.443 million. Census housing starts and building permits for August follow at 8:30 a.m. ET Thursday, in a window that also stacks weekly jobless claims and the Philadelphia Fed's September factory survey. None of those prints will reverse a decision already announced. They will test whether the housing channel the 4.96% 10-year has already tightened is showing up in the data.
Lennar, a national homebuilder, reports third-quarter results after Wednesday's close, with the call at 11 a.m. ET Thursday. The shares closed Friday at $79.60, 43% below their 52-week high. Analysts look for about $1.30 a share, against $2.00 a year earlier. In the second quarter Lennar's new orders were down 4% from a year earlier, to 21,749 homes, with a 15.6% gross margin on home sales. Orders, cancellations, incentives, and that margin will say more than the EPS line.
The iShares U.S. Home Construction ETF ITB, which holds Lennar at 7.9%, behind D.R. Horton and PulteGroup, fell 4.4% over the five sessions through Friday. The iShares Russell 2000 ETF IWM fell 2.1% over the same stretch, a percentage point more than the S&P 500 ETF SPY. There is no mega-cap earnings catalyst this week.
If the committee delivers the hike and the median official still sees this as the last move of 2026, the 4.96% 10-year is the destination duration has been pricing. If the dots fill in with another increase this year, it is a waypoint, and TLT has the rest of the cycle still in front of it.
Frequently asked
What is the Fed expected to do?
Futures price about an 85% chance the committee raises its target range to 3.75% to 4.00%, which would be the first increase since the cycle peaked in July 2023.
Why did expectations flip?
August consumer prices rose 0.4% on the month and 3.4% over the year, with gasoline accounting for more than a third of the monthly increase.
Do economists agree with the futures market?
No: in a Reuters poll completed before the inflation report, 65 of 93 economists still expected a hold.
What else lands this week?
August retail sales come six hours before the decision, housing starts and permits follow Thursday morning, and homebuilder Lennar reports after Wednesday's close.