Macro Signposts | September Fed Hike May Be More Than a Risk Management Exercise

Key arguments

• The FOMC raised the policy rate 25bp and its SEP signals another hike this year, with a possible additional hike in 2027 if inflation moderates too slowly.
• Core PCE, the Fed's preferred gauge, has reaccelerated above a 3% annual pace, even as other inflation measures suggest moderation.
• Energy-driven headline inflation is likely to move much closer to target by next spring via the base effect, unless energy prices rise materially; energy uncertainty remains high due to geopolitics.
• Chair Warsh described the move as removing a "dose" of accommodation and distanced himself from the SEP, suggesting he may favor a more restrictive stance than the median projection.

Corresponding source evidence

1. The U.S. Federal Reserve delivered on consensus expectations by raising its policy rate by 25 basis points (bps) at its September meeting.
2. The Federal Open Market Committee (FOMC) also shared updated forecasts in the Summary of Economic Projections (SEP), sending a strong signal that September’s rate hike will very likely be followed by another hike this year, and possibly an additional hike in 2027 if inflation doesn’t moderate quickly enough. · 2027
3. The FOMC statement explained the move as an action to “support a timelier return to the Committee’s 2 percent goal.” While a range of underlying inflation measures suggest that inflation is moderating back to target, the Fed’s preferred measure – core Personal Consumption Expenditures (PCE) – has reaccelerated and is currently running above a 3% annual pace.