Fed Rate Decision Outlook: Wall Street Widely Expects a 25 Basis Point Hike, Divergence Centers on the Subsequent Path
BlockBeats news, September 17: At 2 a.m. Beijing time on September 17, the Federal Reserve will release its interest rate decision and economic projections, with Chair Kevin Warsh scheduled to hold a press conference half an hour later. As of the eve of the decision, interest rate futures showed about a 90% probability of a 25 basis point rate hike. If the hike materializes, the target range for the federal funds rate will rise to 3.75% to 4%. Of 101 economists surveyed by Reuters, 86 expect the Fed to raise rates by 25 basis points this time.
Among institutions expecting two rate hikes this year, JPMorgan, Morgan Stanley, HSBC and Barclays all expect the Fed to raise rates by 25 basis points in September and December respectively. Morgan Stanley believes that slower disinflation, demand driven by AI investment, second-round effects from energy prices and the need to preserve policy credibility all support further tightening. Barclays had previously expected rates to remain unchanged this year, but adjusted its forecast after Warsh's Jackson Hole speech. Bank of America has the most hawkish forecast, expecting the Fed to raise rates by 25 basis points in September, October and December respectively, for a cumulative 75 basis points of hikes this year. The institution believes that if the Fed stays put when the market has already priced in a hike heavily, it could damage policy credibility and push long-term U.S. Treasury yields significantly higher.
Goldman Sachs and Citi, by contrast, are more inclined to view this action as a one-off adjustment. Goldman Sachs expects the Fed to raise rates by 25 basis points this time, but does not expect it to send a clear signal of further hikes, with Warsh possibly emphasizing continued assessment of economic data; the institution still expects the Fed to cut rates once each in September and December 2027. Citi expects the Fed to pause further action after this hike and resume rate cuts in June 2027; the vote may be unanimous, or there may be at most two dissenting votes in favor of keeping rates unchanged. Citi believes Warsh may describe this action as a "calibration" rather than the starting point of a consecutive hiking cycle.
BlackRock strategist Gargi Pal Chaudhuri holds a minority view, arguing that underlying U.S. inflation is cooling and the Fed should keep rates at 3.50% to 3.75%. She said that if the hike ultimately materializes, investors should focus more on how Warsh explains the threshold for the next hike, and whether rising oil prices have changed the Fed's policy reaction function.
On market reaction, JPMorgan expects that if the Fed hikes as expected and its wording is not overly hawkish, the S&P 500 could rise 0.25% to 1%; if it unexpectedly keeps rates unchanged, long-term inflation expectations and U.S. Treasury yields could rise, and the S&P 500 could fall 1.25% to 1.75%. If Warsh hints that rates must rise to a "substantially higher" level, the index could fall 1% to 2%.
Overall, institutions are fairly unanimous in expecting a 25 basis point rate hike this time, with the main divergence being whether this is a standalone policy adjustment or the starting point of a new round of consecutive rate hikes. The dot plot, the voting results, and Warsh's post-meeting remarks will draw more market attention than the 25 basis point rate move itself.
