The Fed today a widely exepcted 25bp rate hike at the September FOMC meeting and signaled that more action is likely needed to tame inflation. The dot plot skewed more hawkish than we anticipated. There was a strong consensus around another hike this year, with 16 officials anticipating additional tightening in 2026. Next year’s projections showed most officials split between 50bps and 75bps of total tightening. The long-run dot also edged higher to 3.25%. In his first two press conferences, Chair Warsh talked tough about the Fed’s commitment to price stability, even as policy was unchanged. Today, his words were similarly hawkish, with an “unequivocal” and “unwavering” resolve for price stability. However, this time it was delivered against the backdrop of the rate hike, adding to the credence of the message from the dot plot. We now expect the FOMC to deliver a second 25bp hike in the 28th October meeting, a change from our previous expectation that December might see the 2nd 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. So, unless there is a middle east deal which leads to Brent prices falling sharply to below $90 levels, the 28th Oct policy could see the final hike in this rate cycle. While some market participants do see the midterm elections in early November as more of an impediment to a hike at the October meeting than we do, we think that the midterms are less of an obstacle to a second hike than they might be for an initial hike.
