- Fed set to pivot on volatile inflation data
- Warsh’s Jackson Hole speech raised the stakes
- Updated projections could signal further hike
- Rate announcement set for 14:00 EST/18:00 GMT
- Press conference scheduled for 14:30 EST/ 18:30 GMT

By Harry Daniels
LiveSquawk News
@HarryDaniels71

19:00 GMT | 14 September 2026

A week ago, the Federal Reserve’s September interest-rate announcement was expected to be a relatively straightforward affair, with most analysts and market pricing pointing to no change.

However, last week’s inflation data turned those expectations on their head. The Fed’s rate-setting committee is now expected to tighten policy, lifting the federal funds target range by 25 basis points to 3.75–4.00%.

“We think it’s a closer call than the market is pricing,” said JPMorgan’s Michael Feroli. “But at the end of the day, the Chair’s repeated stern warnings on inflation intolerance risk institutional credibility absent some action to back it up.”

Leading economists and central-bank watchers changed their forecasts following stronger-than-expected inflation data published last week by the Bureau of Labor Statistics.

Last Friday, the US reported that headline CPI rose 0.4% month on month (0.396% unrounded) and 3.4% in the 12 months to August, with both figures matching consensus estimates. Core CPI, which excludes food and energy, increased 0.3% on the month (0.290% unrounded), one-tenth of a percentage point faster than in July. The annual core rate slowed by one-tenth of a point to 2.4%. The closely watched supercore measure rose 0.511% month on month, up from 0.189%.

A day earlier, the producer price index, which measures the prices domestic producers receive for their goods and services, also came in elevated, with the monthly measure accelerating from July.

Based on the BLS data, analysts calculated that August core PCE inflation—the Fed’s preferred measure of underlying inflation—was likely to come in at 0.25% month on month and 3.4% year on year when the data is released at the end of the month.

“Friday’s print was a hawkish surprise driven by firmer core goods and core services ex-housing,” Morgan Stanley analysts noted. “While our core PCE estimate still points to disinflation, with markets pricing a nearly 90% chance of a hike, the bar for a September hold remains high.”

Despite a rate increase now being considered the odds-on outcome for Wednesday, many experts remain critical of the Fed’s apparent desire to raise interest rates in response to elevated oil prices.

Central-bank watchers cite Fed Chair Kevin Warsh’s speech at Jackson Hole as the catalyst for the Fed’s more hawkish stance.

In his clearest explanation of his thinking since taking office, Warsh said: “We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.”

Philip Marey, senior US strategist at Rabobank, argued that the Jackson Hole speech had created a credibility problem for Warsh that would be difficult to resolve without a rate increase before the end of the year.

“Although markets are now convinced that the Fed is going to hike in September, we still have some lingering doubts,” Marey cautioned. He pointed to the volatile nature of the categories that had contributed to the rise in core CPI.

“First, the 0.1 percentage point overshoot in core inflation month-on-month seems to have been caused to a large extent by an extreme 5.9%- this is a month-on-month! increase in the price of wireless telephone services. Otherwise, core inflation would have been in line with the 0.2% consensus expectation and low enough for the doves to stick to their guns. In fact, they may point to the random nature of this overshoot as an argument for remaining on hold in September.”

The quarterly revisions to Fed staff forecasts are expected to reflect the near-term rise in inflationary pressures.

“We expect the new Summary of Economic Projections (SEP) to show a slight upward revision to headline inflation and a downward revision to core inflation that primarily reflects upcoming changes in BEA methodology, along with downward revisions to GDP growth and unemployment-rate projections,” Barclays wrote in a weekly note.

Regarding the Fed’s dot plot, the central expectation is for the median 2026 projection to rise to 3.875% from 3.75%. Assuming a 25-basis-point increase this week, that would imply one further increase of the same size by year-end.

The Fed chair’s performances at press conferences following rate decisions have left some observers wanting more. Some argue that his lack of detail has left the central bank cornered into raising rates.

Should the Fed raise rates, the first question is likely to be whether the move marks the beginning of a hiking cycle. Many observers think it will not.

“We don’t expect any meaningful changes in the post-meeting statement,” JPMorgan’s Feroli said. “For our part, after this week we are looking for one more hike in December. Setting aside the midterms, a credible case for passing in October is that it takes time to observe the effects of the hike on the economy.”

Rabobank’s Marey predicts a “one-and-done” scenario.

“Although markets are now pricing in three to four hikes before the end of 2027, we think that the supply-side nature of the shocks that are driving this spell of inflation does not warrant a new hiking cycle. One should suffice to keep inflation expectations anchored, two at most.”