On Wednesday, Sept. 16, the Federal Reserve will announce its latest decision on short-term interest rates. The group’s decision will have ramifications for the economy and the stock market. CME Group’s FedWatch tool was estimating a 60% chance of a rate hike as of Sept. 8, after the August nonfarm payrolls report showed jobs had grown well above analysts’ consensus expectations.
For the S&P 500 (SNPINDEX: ^GSPC), Nasdaq Composite (NASDAQINDEX: ^IXIC), and Dow Jones Industrial Average (DJINDICES: ^DJI), a rate hike would likely be a bearish outcome, albeit a transient and relatively minor one. The bigger and longer-lasting impact could come from what the new Fed Chair, Kevin Warsh, says about the ongoing fight against inflation in light of the Fed’s action (or inaction).
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Here’s what you need to know in advance of the event.
Inflation is running hot, per the metric the Fed watches the most closely
The Consumer Price Index (CPI), which tracks what households pay for a broad basket of goods and services, from rent and groceries to airfares and used cars, climbed by 3.4% in the 12 months ending in July 2026. That was actually a deceleration from prior readings, but it’s still well above the Fed’s long-term target of 2% annual inflation. But the CPI isn’t the main metric determining the Fed’s potential actions.
At a keynote speech given at Jackson Hole, Wyoming, on Aug. 28, Warsh pointed to the 12-month change in the personal consumption expenditures (PCE) price index, the Fed’s preferred gauge for judging the pace of inflation, at 3.7%, with the six-month change running at 4.1%. He also said that 54% of the 199 items in the PCE’s basket of goods had seen their prices rise by more than 3% over the past year.
That suggests there is ample data supporting the view that inflation is running higher than desired. It also suggests there will probably be a rate hike on Sept. 16.
But probability is not inevitability.
August’s producer price index data will be released on Thursday, Sept. 10, and the August CPI data will be published on Friday, Sept. 11. If they come in cooler than expected, they could be used to justify holding interest rates steady. If they come in hot, it dramatically increases the likelihood that rates will be increased.
