The Federal Reserve did what much of the market had spent September bracing for: on September 16, the FOMC voted 12-0 to raise the federal funds target range by 25 basis points to 3.75%–4.00%, the first hike since 2023.
A hawkish committee, and a new Chair setting the tone
Fed Governor Michael Barr called the move an “important action” and said policymakers still see more work ahead to bring inflation back to target. The updated Summary of Economic Projections pointed to a median rate near 4.1% by year-end — implying the committee expects at least one more move before 2026 is out — while unemployment projections were revised down slightly for both 2026 and 2027, reinforcing the sense that officials see room to keep tightening without derailing the labor market.
Under new Fed Chair Kevin Warsh, the tone has shifted noticeably more hawkish than markets had priced earlier in the year. His Jackson Hole remarks on inflation credibility, combined with a hot August core CPI print and a resilient 162,000 August payrolls figure, flipped rate-hike odds from roughly 50% just weeks earlier to something close to a consensus trade by the time the meeting arrived.
What’s priced for October
The next FOMC decision lands October 27–28, and CME FedWatch pricing has moved up fast — odds of another hike jumped toward the 70%-plus range after Barr’s follow-up comments and a fresh hot inflation reading, with the 2-year Treasury yield, the maturity most sensitive to Fed policy shifts, climbing more than 13 basis points on the move. Futures markets are now pricing the funds rate rising toward roughly 4.2% by December.
For currency and equity traders, the read-through is straightforward: a more hawkish Fed generally supports the dollar and pressures rate-sensitive assets like gold, at least until the data starts justifying a pause.