News Flash: 70% of Wall Street Institutions Are Calling for at Least a 50-Basis-Point Fed Rate Hike in 2026
Key Points
The FOMC will release its decision on interest rates today, Sept. 16, at 2 p.m. ET.
Wall Street banks dramatically altered their thinking on rate hikes following the release of the August inflation report.
Entrenched inflation likely requires direct action by the central bank.
Today, Sept. 16, is the day all of Wall Street has been waiting for. In mere hours, at 2 p.m. ET, Fed Chair Kevin Warsh and the Federal Open Market Committee (FOMC) will announce what, if any, monetary policy changes have been made to the federal funds target rate -- and that answer is expected to cause wild vacillations in the Dow Jones Industrial Average (DJINDICES:^DJI), S&P 500 (SNPINDEX:^GSPC), and Nasdaq Composite (NASDAQINDEX:^IXIC).
Over the last few weeks, the odds of a Fed rate hike have hovered around 50-50, both on prediction markets and for the CME Group's (NASDAQ:CME) proprietary FedWatch Tool. But there's been a decisive shift in expectations following the release of the August inflation report.
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All eyes are on Fed Chair Warsh and the FOMC. Image source: Official Federal Reserve Photo.
Brace yourself for several rate hikes
Since Kevin Warsh became Fed chair nearly four months ago, he's instituted several reforms, none of which have gained more notoriety than removing forward-looking guidance from FOMC meeting statements. Unfortunately, this lack of transparency that the equity and bond markets had become accustomed to for more than two decades has made it considerably more challenging to decipher what the central bank will do next.
While a few Wall Street institutions and economists altered their take on the FOMC's Sept. 16 meeting after Warsh's Jackson Hole speech on Aug. 28, we witnessed a monstrous shift in thinking after the August inflation report was released.
Almost all of the Fed watchers that had not been expecting a September hike before today changed their call after the August CPI printed a bit firmer than expected https://t.co/NkHgu4nHmF pic.twitter.com/aEBqUIeQm0
— Nick Timiraos (@NickTimiraos) September 11, 2026
According to calls aggregated by The Wall Street Journal and published on X (formerly Twitter) by Nick Timiraos, its chief economics correspondent, only four of 20 institutions don't expect a rate hike this year, and 14 of the 16 that do are calling for a 50- or 75-basis-point increase to the federal funds target rate in 2026.
As a reminder, the last time the Fed kicked off a rate-hiking cycle with a 50-basis-point increase was in March 2022, which was followed by a 13% decline in the benchmark S&P 500 over the next three months.
Image source: Getty Images.
Trumpflation and the AI revolution may force the Fed into action
Although a rate hike is bound to draw the ire of President Donald Trump, who's been advocating for lower interest rates since his second term began, Warsh and the FOMC may have little choice if they want to deliver price stability.
While modest levels of inflation are normal for a growing economy, Trumpflation (inflation specifically driven by Trump's policies) and the artificial intelligence (AI) revolution have pushed price increases well beyond the central bank's tolerable boundary.
Two of the president's policies, tariffs and the Iran war, have elevated the prevailing inflation rate. While the primary source of inflation has been higher fuel prices caused by Iran's closure of the Strait of Hormuz, the bigger concern is that the effects of Trumpflation are showing signs of becoming entrenched in the U.S. economy. In other words, Iran-war-driven inflation extends well beyond the energy sector.
BREAKING: August CPI inflation comes in at 3.4%, in-line with expectations of 3.4%
— The Kobeissi Letter (@KobeissiLetter) September 11, 2026
Core CPI inflation falls to 2.4%, also in-line with expectations of 2.4%.
Month-over-month CPI inflation rose +0.4%, the biggest increase since May 2026.
Treasury yields are rising on the news.
Additionally, strong demand for AI infrastructure, coupled with persistent AI hardware supply shortages, has given businesses exceptional pricing power. While this has been the fuel lifting the Dow, S&P 500, and Nasdaq Composite to new heights, it's also responsible for increasing consumer prices.
Entrenched inflation likely requires direct action by the FOMC -- and an overwhelming percentage of Wall Street banks expect that action to take place in a matter of hours.
Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CME Group. The Motley Fool has a disclosure policy.