CME FedWatch data shows markets now assign an 87% probability to a 25-basis-point rate hike at the Federal Reserve’s Sept. 15-16 FOMC meeting. On Polymarket, the probability of a hike stands at 83%.
If delivered, the move would be the Fed’s first rate increase after five consecutive meetings on hold and the first policy shift under Chair Kevin Warsh. Even so, market attention has largely moved past the basic question of whether the Fed hikes. The main focus now is the updated dot plot, whether it signals follow-up tightening, and how Warsh describes the inflation path in his press conference. The Bank of Japan’s meeting in the same week is also part of the picture.
How hike expectations moved higher
The move in pricing did not come in a single jump. It built in three stages.
The first came after Warsh’s speech at Jackson Hole in late August. That appearance pushed market expectations from 35.4% to 55.7%. Warsh said inflation data that came in better than expected over the summer had not proved that the underlying trend had clearly improved. He also said the Fed needed confidence that inflation was returning to target clearly enough and fast enough. Markets took that as an early signal for the September meeting.
The second stage came after the Sept. 8 nonfarm payrolls release. Around the same time, the U.S. 10-year Treasury yield rose as high as 4.954% intraday, its highest level since October 2023, reflecting advance pricing for a hike.
The final push came from the U.S. August CPI report released by the Bureau of Labor Statistics on Sept. 11. Headline CPI rose 0.4% month over month, up from the prior 0.1%, and 3.4% year over year. Core CPI rose 0.3% on the month, above market expectations of 0.2%. The next day, CME FedWatch showed hike odds at 85.5%, while pricing in several rate futures markets moved up to 87%.
The real focus: the dot plot and Warsh’s tone
The first key release next week is the Fed’s updated economic projections, including the dot plot.
The June dot plot showed that 9 of 18 officials expected at least one more rate increase by the end of 2026, and 6 of them expected two hikes. The median projection for the policy rate at the end of 2026 was revised up to 3.8% from 3.4% in March. The 2026 PCE inflation forecast was also raised sharply to 3.6% from 2.7%.
If the new median moves higher again next week, markets are likely to read that as official recognition that this would not be a one-off move but the starting point of a broader hiking cycle.
The second focal point is Warsh’s press conference. At the June meeting, he said he had not submitted any forecast and stressed that this was consistent with his long-held position. That has made it harder for markets to infer the chair’s own stance directly from the dot plot, which is why his wording at the press conference matters so much.
Former Fed Vice Chair Clarida has said that if the Fed hikes next week, more hikes would follow. Economic journalist Heather Long has also said a September hike is close to locked in. In practical terms, the issue is no longer the decision alone. It is how the Fed describes the path after that, and how markets reprice the rate curve in response.
Traders currently expect at least three more hikes by June 2027, with a base case of four hikes by July 2027. That is a sharp reversal from early 2026, when markets were still betting on four rate cuts.
Bank of Japan meeting adds another tightening signal
The Fed is not the only major central bank that could tighten next week. The Bank of Japan will meet on Sept. 17-18. According to a Bloomberg survey, all 52 BOJ watchers expect a rate increase after the Sept. 18 decision, with consensus centered on a 25-basis-point move to 1.25%. Among them, 93% expect another hike before January next year. Recent remarks from BOJ Governor Kazuo Ueda have also pointed to the possibility of a move this month.
The European Central Bank has already acted, raising rates by 25 basis points to 2.65% on Sept. 10.
With three major central banks shifting toward tighter policy at nearly the same time, markets are watching whether yen carry trades face renewed pressure. If higher Japanese rates raise funding costs, leveraged positions built on borrowing yen to buy U.S. dollar assets or cryptocurrencies could come under pressure to unwind. The report argues that this transmission channel may be more easily underestimated than the Fed hike itself.
Key events to watch next week
- Sept. 17, 2:00 a.m. Taiwan time: The Fed releases its rate decision and updated dot plot. Markets will watch whether the median rate path for 2026 and 2027 is revised higher again from June.
- Sept. 17, 2:30 a.m. Taiwan time: Warsh’s press conference. Markets will look for how he describes the inflation path and whether he uses language suggesting a one-off move or continued hikes.
- Sept. 18: The Bank of Japan announces its decision. The focus will be on whether the size of the hike matches consensus and what Ueda says about the pace of future tightening.