Economists' expectations shifted sharply on the eve of the Fed meeting. Reuters' September 14 poll found 86 of 101 respondents expecting a 25-basis-point hike at the September 15–16 meeting, taking the federal funds target to 3.75%–4.00%. In the previous week's poll, more than two-thirds expected a hold. Following inflation releases, most economists changed their meeting forecast from unchanged rates to a hike.

Under its July 29 decision, the Fed currently maintains rates at 3.50%–3.75%. Whether it hikes this week, and how much further tightening is needed afterward, are the meeting's central questions.

Inflation changes expectations without establishing consensus on repeated hikes

Poll counts for this meeting's hike and further tightening
Original Chinese illustration · English guideReuters survey comparison: 86 of 101 economists expect a 25-basis-point hike at this meeting. On the subsequent path, 37 of 70 expect at least one further hike after this meeting and before the end of next March. Separate pages of an illustrated research notebook distinguish the two respondent groups and horizons.

Last week's inflation data drove the shift. Reuters reported September 14 that August US consumer prices excluding food and energy rose 0.3% month on month, while persistently high oil raised doubts about smooth disinflation. The Fed faces both energy inflation and the possibility of pass-through into other goods, services and expectations.

Rate increases cannot directly expand oil supply, but higher financing costs and weaker demand help contain subsequent price increases from supply shocks. Monetary transmission takes time, however. Further hikes still depend on subsequent inflation and activity.

The poll also showed that strong consensus on this week's hike did not extend to later policy. Of 70 answering the subsequent-path question, 37 expected at least one additional increase after this meeting and before next March-end, only slightly more than half. Even if this week's hike occurs, continuation and magnitude remain significantly disputed.

Beyond the decision, watch the conditions for further tightening

Fed release time and three key policy questions
Original Chinese illustration · English guideBeijing time: September 17 at 02:00. Three documents identify the meeting's key information: rate decision, economic projections and conditions for further tightening. A calendar and documents illustrate the release rather than a market-price chart.

Predicting this week's hike does not mean unanimously endorsing it. In Reuters' report, JPMorgan economist Michael Feroli expected a hike but considered the decision less certain than futures suggested. Scotiabank economist Derek Holt also expected a hike while considering action inappropriate at this time.

The Fed will announce its decision September 16 at 14:00 US Eastern time, or September 17 at 02:00 Beijing time. Beyond whether rates rise, watch the new projections' implications for the remainder of the year and Chair Warsh's explanation of conditions for further tightening.

A hike combined with flexible guidance would leave policy responsive to data, with consecutive increases far from certain. If projections also point to more tightening, markets must reassess how much higher rates could go and how long they would remain elevated.