The Federal Reserve raised interest rates on Wednesday and flagged further increases in borrowing costs in coming months, with new U.S. central bank chief Kevin Warsh joining a unanimous decision that effectively acknowledges the Trump administration’s inability so far to control inflation.
New policy projections showed 16 of 18 policymakers anticipate at least one more quarter-percentage-point hike by the end of this year, with only two of them seeing rates remaining stable from here. Warsh apparently again did not submit a rate projection.
It’s the first policy shift under the new Fed chief, who took office in late May after being selected by Trump with an expectation that he would cut rates.
The Fed’s new policy statement and economic projections, to the contrary, show a central bank opening the door on tighter monetary policy through next year, with the policy rate rising to the 4.00%-4.25% range by the end of this year and ending 2027 at the same level.
Here is what market strategists and economists are saying:
DEREK HOLT, VICE-PRESIDENT AND HEAD OF CAPITAL MARKETS ECONOMICS, SCOTIABANK, TORONTO:
“Warsh came out swinging with a very hawkish set of opening remarks. For instance, he completely faded progress for the past three months toward lower m/m core PCE readings in favour of quoting higher y/y readings and the past five years of inflation. The latter continues to trouble me as this sounds like a Fed Chair fighting the last fight and almost in a price level targeting sense that does not let bygones be bygones. Warsh has a long memory and holds a grudge, it would seem. The overall tone sounds extraordinarily hesitant to weigh in on the future with extreme deference to a filtered past.
Bank of Canada “Governor [Tiff] Macklem speaks on Monday about the economy along with Q&A and a press conference. I would be surprised if today’s move by the FOMC doesn’t add one more ingredient to pave the way for Macklem to begin hiking soon and with October being a live meeting. They’ve all come away from the same meetings including the BIS, Jackson Hole etc and there isn’t much company for the BoC in the BoE as the only other notable central bank to whiff so far. Canada is getting a major back door pay hike c/o Trump’s war, I think they already have evidence of pass through at a much lower policy rate with a widening rate spread ) and fiscal policy is ramping into higher gear.”
TAYLOR SCHLEICH and ETHAN CURRIE, ECONOMISTS AT NATIONAL BANK, TORONTO:
“The market reaction is not surprising based on what was delivered/signalled. But the Fed will still need to follow through on this hiking bias for the longer-end to remain somewhat contained. We do believe that further tightening is in store, likely at the next decision in late October. From there however, the outlook becomes a bit more muddied. Despite Warsh’s outwardly hawkish stance, the Fed has demonstrated time and again that they’ll err on the side of accommodation. That doesn’t mean they’ll be easing early next year but if inflation begins to cool (as it’s widely expected to), we think it’ll be difficult to build a consensus around hiking a third (or fourth, or fifth, etc.) time. We see a 4.25% upper bound target representing the peak of what could be a brief tightening cycle. Eventual cuts may be dictated by the sustainability of the economic expansion (i.e., the AI boom). Relative to the very gradual easing path laid out in this dot plot, we think risks are skewed to earlier and more significant rate cuts.”
HELEN LAO, ECONOMIST WITH CIBC, TORONTO:
“Our forecast has the Fed hiking by another 25bps in October, in line with the median dot of one more hike by the end of the year. The unanimous vote suggests that inflation is still top of mind for all FOMC members and with oil prices are still above $100 per barrel, that raises the risk of spillovers into core inflation or inflation expectations. The upward revision to growth is also consistent with this morning hotter than expected retail sales suggesting consumption remains resilient. Beyond 2026, the policy path remains uncertain as much will hinge on development of the Middle East conflict and future inflation data. We have two cuts penciled in in the second half of 2027 assuming that the conflict is resolved and oil prices decline back down.”
MICHAEL JAMES, MANAGING DIRECTOR, EQUITY SALES TRADING, ROSENBLATT SECURITIES, LOS ANGELES:
“It’s similar to what we got in July where everything sold off pretty significantly once Chair Warsh’s press conference started. That’s what happened again today.
“There were expectations that you were going to get a rate hike, which we got. The issue from an equities standpoint, and the reason things are weaker is because Chair Warsh was pretty vague with a lack of specifics and a lack of real content in the press conference.
“He answered all the questions with the right buzzwords but a lot of it was from a 30,000-foot view. The market wanted to get a better sense of after this rate hike, what should we be expecting going forward.
“Similar to two months ago the market didn’t get the type of specifics it was hoping to hear. That’s indicative of the increased frustration from a lot of portfolio managers over Chair Warsh’s style of communication. In his mind, he’s clearly right about how he’s going to go about doing things.”
JUSTIN GREENHILL, CHIEF INVESTMENT OFFICER, SOLLINDA CAPITAL MANAGEMENT, MIAMI, FLORIDA:
“The fixed income derivative market was pricing in over a 90 percent chance of a 25bps rate hike at this meeting so a hike was far from a surprise. The press conference was notably hawkish and we think this is likely to at least in the near term calm the recent rise in long duration interest rates. It is less clear how this will impact equities but we expect small caps stocks underperform mega caps as financial conditions tighten going forward.”
DUSTIN REID, CHIEF STRATEGIST, MACKENZIE INVESTMENTS, TORONTO:
“The Fed is clearly focused on getting inflation lower and while that message was clearly around in the summer, July caused a bit of a wiggle. I think today’s decision and Warsh’s comments signal they are very serious and the unanimous vote really speaks to me, in terms of the intellectual anchors, like Waller, who voted for this. If it wasn’t an election year, it would be pretty clear to me that they would be going back to back. Still, one more hike is on the cards for this year and the risks are we’ll get more rather than less in 2027.”
DAVID ROSENBERG, FOUNDER OF ROSENBERG RESEARCH, TORONTO:
“To nobody’s surprise, the Warsh Fed decided to hike the funds rate by +25 basis points to the 3.75%-4.0% range, and the median “dot” snuck in another move by year-end (with 16 of the 18 members casting a higher number). Another one for December? The vote was unanimous — no dissents this time. The economy is seen as “resilient” and “solid,” and capex as “robust” (from “strong” in the late-July statement)."
“The Fed also seems to think that price pressures are broadening beyond just oil, because the inflation comment shifted from attaching it exclusively to energy to it just remaining “elevated”. That is not a subtle shift in language — so consider this to have read hawkishly overall."
“It is no surprise that the doves threw in the towel for today, but I am amazed that they also got pushed into agreeing to a second round by the end of this year. What exactly changed to cause that? We’ll find out before long.”
STEPHEN BROWN, CHIEF NORTH AMERICAN ECONOMIST, CAPITAL ECONOMICS
“The Fed’s interest rate hike today is likely to be followed by at least one more later this year, probably in December. While the new Summary of Economic Projections (SEP) implies that the Fed may be content with just two hikes in total, we judge that Fed officials are underestimating the potential for the unemployment rate to decline, so we are sticking with our forecast for a third hike in 2027 as well.”
JEFFREY ROACH, CHIEF ECONOMIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA:
“Chairman Warsh and the rest of the committee are building a strong reputation through their laser focus on defeating inflation. Hawkish overtones are throughout the latest Summary of Economic Projections. Given the current economic circumstances, the committee delivered what was needed, and markets are handling it remarkably well. Going forward, the inflation debate will likely center on the magnitude of improvement as geopolitical conflicts wane.”
JUAN PEREZ, DIRECTOR OF TRADING, MONEX, WASHINGTON, D.C.:
“The number one thing that surprises us from the decision has to be the unanimous vote to actually hike by 25 basis points. So we are taking this as a very hawkish approach by the Federal Reserve.
“The message that it seems to be sending by increasing interest rates without anyone opposing to it is that they’re willing to do this one more time, and very likely in December if they get more evidence of inflationary pressures for the remainder of the year.”
DANIEL SILUK, HEAD OF GLOBAL SHORT DURATION & LIQUIDITY, JANUS HENDERSON INVESTORS, NEWPORT BEACH, CALIFORNIA:
“The Federal Reserve delivered the widely anticipated 25bp rate hike, lifting the fed funds target range to 3.75%-4.00%. More importantly, policymakers used both the statement and updated projections to reinforce the message that inflation remains the central concern and that today’s move is unlikely to be viewed as a standalone adjustment. The decision was unanimous, removing what many expected would be at least a handful of dovish dissents and presenting a more unified Committee than markets had anticipated.
“The statement itself was subtly but meaningfully hawkish. Policymakers upgraded their description of the economy, noting that domestic spending has been resilient, productivity growth is strong and capital investment remains robust, while explicitly stating that today’s action will support a “timelier return” of inflation to the 2% target. Notably, the Committee removed references to inflation being driven by supply shocks, suggesting policymakers are increasingly focused on broader and more persistent inflation pressures rather than viewing recent price increases as largely transitory or externally driven.”
JP POWERS, CHIEF INVESTMENT OFFICER, RWA WEALTH PARTNERS, BOSTON:
“I’m looking at the two-year here, though, and that was the first reaction, but now it’s coming back up higher here. So, maybe it helps the long end a little bit, but the front end’s still worried about another hike later this year, and then who knows what for 2027.
“This statement, they’re shorter than I think they’ve ever been, but just the final line, the committee will deliver price stability - period. Clearly, they want to make sure that the markets know that they’re here and that’s job number one. And the job market seems to be in a good place, and they’re really trying to navigate how much of this inflation could go away if we get some resolution with the conflict in Iran. And I think the core inflation numbers are still just too high for anybody’s comfort, and so they’ve got to take action here. But it’ll be interesting to see.
“So we’re getting these forecasts, people thinking now we’ll get another one by the end of the year. But I do think this is probably a Fed that is now meeting to meeting versus some of the prior regimes where it was a little bit more forecasted and you’d get one move and you’d sort of know, all right, so this is a trend now that we should expect the next few meetings to maybe adopt. And I’m not sure that that’s going to be how this one operates.”
DAVID KRAKAUER, VICE PRESIDENT OF PORTFOLIO MANAGEMENT, MERCER ADVISORS, SAN DIEGO, CALIFORNIA:
“The shift from a 9-3 hold in July to a unanimous 12-0 hike today is the real story. That kind of consensus, with every member of the committee aligned behind tightening, doesn’t happen without conviction. This isn’t a divided Fed feeling its way through uncertainty. It’s a unified committee sending a clear, collective message that inflation is an ongoing issue, backed by oil above $100, diesel at a record $6.23, and a stronger August jobs report.
“A unanimous hike materially raises the probability of another move before year-end, and investors positioned for the easing cycle of early 2026 need to fully recalibrate. That said, the most important message remains: focus on what you can control, your asset allocation, your time horizon, your spending, and not what you can’t. A clear, unified Fed is actually easier to plan around than a divided, unpredictable one.”
MATTHIAS SCHEIBER, HEAD OF THE MULTI-ASSET TEAM AT ALLSPRING GLOBAL INVESTMENTS, LONDON:
“This increase in the federal funds rate was well telegraphed and, some may argue, largely driven by the bond market. With yields across the curve at cycle highs, the benchmark U.S. 10-year Treasury yield recently reached 5.0%, and the yield curve has steepened meaningfully. Higher front-end rates will do little to address supply-driven inflation fears, as was the case during the 2022 tightening cycle. That said, the U.S. economy is currently well positioned to absorb higher short-term rates, and the rate hike may lend the FOMC some additional credibility. Changes are underway at the Fed, and the use of market pricing to help guide policy is likely to be welcomed, despite pressures on policymakers to the contrary.
“Looking ahead we expect volatility in government bond yields to increase as the path of yields becomes increasingly data dependent. The level of real yield on offer appears attractive today, particularly in the ‘belly’ of the curve, or the 5- to 10-year segment. Absent a slowdown in economic growth, we believe yields could continue to move higher.”
STEVE SOSNICK, CHIEF STRATEGIST AT INTERACTIVE BROKERS, NEW CANAAN, CONNECTICUT:
“The decision was unanimous, which tells us the Fed is on board with this approach. Policymakers are signaling they will do what’s required to move inflation back toward 2%, and if that means further rate hikes, the market appears generally comfortable with that.
“There had been some concern that Warsh was talking a lot about inflation but might not be prepared to act. Today’s decision addresses that concern. His Fed has now taken action.
“Looking ahead, inflation would likely have to slow more quickly than expected for the Fed not to raise rates again. With markets already pricing in another hike, particularly in December, a meaningful improvement in inflation could persuade policymakers to hold off. Otherwise, further tightening remains the likely path.”
RYAN DETRICK, CHIEF MARKET STRATEGIST, CARSON GROUP, OMAHA, NEBRASKA:
“As widely expected, the Fed hiked interest rates for the first time in more than three years. After the hawkish comments from Warsh a couple of weeks ago in Jackson Hole, he kind of backed himself into the corner a little bit.
“The fact that it was unanimous is a tad surprising. At the same time, it really shows that the Fed is serious about combating the broadening inflation backdrop that we’re seeing.”
CHRISTOPHER HODGE, CHIEF US ECONOMIST, NATIXIS, NEW YORK:
“Today’s decision was the path of least resistance. Staying on hold would further risk credibility and 50 might be overkill and tie the Fed’s hands in the coming months. This move will do very little to actually address inflation, but it will buy the FOMC time to see if the higher than expected print in August was just a bump in the road or something more worrisome.
“We think its possible this is a one off, which would be unusual, but hiking into disinflation is itself unusual. Because it is hard to string together several encouraging inflation prints, we will pencil in another hike in December, but this could be one and done. We don’t think policymakers will think more than a nudge would be needed to help the disinflationary process, but incoming inflation prints will continue to be decisive.”
KARL SCHAMOTTA, CHIEF MARKET STRATEGIST, CORPAY, TORONTO:
“Today’s decisive hike—supported by all FOMC members and paired with an upgrade in the ‘dot plot’ summary of economic projections—should go a long way toward restoring confidence in the Fed’s commitment to fighting inflation, and help remove a major headwind keeping the dollar restrained.”
KAY HAIGH, GLOBAL HEAD AND CIO OF FIXED INCOME AND LIQUIDITY SOLUTIONS, GOLDMAN SACHS ASSET MANAGEMENT, NEW YORK:
“The Fed has signaled it does not at this stage envisage an aggressive tightening cycle. Most FOMC members see a total of two hikes this year per the SEP, and it will likely skip October’s meeting given its proximity to the midterm elections. One more hike this year in December is our base case, although this remains contingent on upcoming CPI reports and the path of energy prices.”
MICHELE RANERI, VICE PRESIDENT AND HEAD OF U.S. RESEARCH AND CONSULTING, TRANSUNION, CHICAGO:
“The Federal Reserve’s decision today to raise interest rates by a quarter percentage point reflects its continued focus on addressing persistent inflation. While inflation has moderated from peak levels, it has remained elevated enough to prompt additional action from the Federal Open Market Committee. At the same time, labor market conditions have remained relatively resilient with unemployment rates holding steady in recent months, providing the Fed the confidence to raise rates at this time.”
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN:
“Is this more like 1994 or 1997? In 1994, the Fed embarked on an aggressive sequence of hikes. In 1997, it hiked once and was done. Given the language about this being a way to support a ’timelier return’ to the Fed’s target, I wouldn’t bank on another hike this year. Yes, the median dot shows another hike this year, but a lot can change between now and then.
“Warsh not only read the markets, but he read the room, supporting a rate hike. That’s why we can get a relatively muted response from the markets despite the change in course.”