Fed Set for First Rate Hike in Three Years

The Federal Reserve is expected to raise interest rates for the first time since July 2023. Futures markets indicate a probability of over 90% that the FOMC will approve a 25 basis point increase during its meeting on September 16–17.

This adjustment would set the federal funds rate target between 3.75% and 4.00%. The shift follows a rise in consumer prices to 3.8%, which is nearly double the Fed’s 2% target and represents a three-year high.

Kevin Warsh, who became Fed Chair in May 2026, has adopted a hawkish stance. Following the previous cycle of six rate cuts totaling 175 basis points, nine out of 18 FOMC participants projected at least one hike by the end of 2026.

Analysts from Morgan Stanley, Bank of America, and Deutsche Bank anticipate further rate increases before the end of the year. The CME FedWatch tool shows that market expectations for a September hike rose from 36% to over 90% in four weeks.