Markets put September hike odds at 46%

Federal Reserve officials and interest-rate futures pushed September back into play this week after the central bank held rates steady on July 29 but recorded three dissents in favor of an immediate increase. The Federal Open Market Committee kept the federal funds target range at 3.5% to 3.75%, while Beth Hammack, Neel Kashkari and Lorie Logan preferred a quarter-point hike, the Fed said. Inflation “remains elevated” relative to the Fed’s 2% goal, the statement said, citing supply shocks including energy. By August 5, market-based odds for a September increase had risen to about 46%, according to reporting that cited futures pricing. ### Why did September suddenly become a live meeting again? July 29 changed the starting point. The Fed held rates unchanged, but the 9-3 vote showed a larger bloc arguing for tighter policy now rather than later. The statement also said economic activity was expanding at a solid pace and that inflation was still elevated, language that left room for another increase if price pressures failed to ease. Neel Kashkari’s position was already visible in that vote. The Minneapolis Fed president was one of three officials who preferred to raise the target range by 25 basis points at the July meeting, according to the Fed’s statement. That matters because dissenting votes can reshape how traders read the odds for the next meeting. ### What are traders actually measuring when they say “46% odds”? (federalreserve.gov) CME Group says its FedWatch tool translates 30-day federal funds futures prices into probabilities for upcoming Fed moves. CME’s own materials tell media to attribute those probabilities to “CME FedWatch,” and the company says the tool gauges the likelihood of changes to the federal target rate from interest-rate traders’ pricing. (federalreserve.gov) CME also said in an August 5 rates recap that “FedWatch pricing is one rate hike in 2026” and that, before the July 29 Fed meeting, markets had been pricing two hikes for the rest of the year. That note used data as of August 3 and said oil-driven inflation fears and conflicting data had eroded market consensus. The reported 46% figure for September is more specific than CME’s recap, but it fits the same direction of travel: fewer expectations for cuts and a higher probability of at least one additional increase. (cmegroup.com) ### What did Fed officials say about inflation on August 5? Lisa Cook said on August 5 that “inflation is too high” and said she would not put too much weight on a single month of better data. In remarks in Anchorage, Alaska, the Fed governor said the personal consumption expenditures price index rose 3.7% in the 12 months through June, while core prices rose 3.3%. (cmegroup.com) Cook also pointed to two sources of price pressure. She said the Middle East conflict had raised energy and other goods costs, and that companies were increasing capital spending to build artificial-intelligence infrastructure. Those remarks aligned with the Fed’s July 29 statement, which cited energy-related supply shocks and uncertainty linked in part to the Middle East conflict. (federalreserve.gov) ### Does 46% mean the Fed is likely to hike? A 46% reading does not mean the Fed has signaled a decision. It means futures traders were pricing nearly even odds of a quarter-point increase at the September meeting, based on market prices at that point. CME describes FedWatch as a market-implied probability tool, not a forecast of what officials will definitely do. (federalreserve.gov) The Fed’s own schedule fixes the next decision date. The Federal Reserve Board’s calendar shows the next FOMC meeting is set for September 15-16, with the policy statement and press conference due on September 16. The minutes from the July 29 meeting are scheduled for October 7, according to the Fed’s calendar. (federalreserve.gov) (cmegroup.com)