The Federal Reserve is widely expected to maintain its interest rate steady at its September 15-16 meeting and throughout the remainder of 2026, according to a majority of economists surveyed in a Reuters poll conducted September 4-9, even as market expectations have shifted toward potential rate increases. Approximately 70 percent of economists polled, representing 65 of 93 respondents, anticipate the federal funds rate will remain in the 3.50%-3.75% range at next week's meeting. This represents a significant decline from the 90 percent who held this view in the August poll.
The remaining 30 percent of economists expect a quarter-percentage-point increase, which would mark the first rate hike since July 2023. When looking at the full year 2026, about 56 percent of economists, or 52 of 93 surveyed, predict rates will remain on hold for the entire year. This represents a substantial shift from earlier months when 80 percent of economists held this view.
The remaining 44 percent now expect at least one hike this year, more than double the proportion who anticipated rate increases in the previous month's poll. Among primary dealers, views are more evenly split on the possibility of rate increases in 2026. Half of the dealers polled, numbering 11 respondents, expect rates to remain unchanged throughout the year.
Ten dealers anticipate at least one hike, while Jefferies represents the lone voice expecting rate cuts from the U.S. central bank. Economic data releases in recent weeks have generally been stronger than anticipated. Eli Nir, U.S. economist at TD Securities, noted that inflation data scheduled for release on Friday would be critical in shaping forward guidance.
"If everything plays out as we're expecting, then they'll stay on hold next week. But if there's an upside surprise on the inflation data, they're not going to wait around. They're likely to start a hiking cycle," Nir stated.
The policy outlook has been complicated by Fed Chairman Kevin Warsh's recent shift toward providing minimal guidance on future monetary policy decisions. This reduced transparency has noticeably diminished economists' confidence in their forecasts. Warsh's speech at the Jackson Hole economic symposium last month was widely perceived as hawkish in tone, contributing to increased market expectations for rate hikes.
Financial markets have already priced in two rate hikes by March, influenced partly by geopolitical developments. Crude oil futures have surged back above 100 dollars per barrel amid renewed escalation in Middle East conflict, adding inflationary pressure to the economic outlook. Yields on the interest-rate-sensitive two-year Treasury note have climbed approximately 20 basis points since Warsh's Jackson Hole speech, while the 10-year Treasury yield is trading near 5 percent, a level Trump administration officials have indicated they wish to avoid.
Stephen Stanley, chief U.S. economist at Santander, offered a more hawkish assessment: "In my view, Chairman Warsh coming out firmly in the camp of the hawks at Jackson Hole means that a hike is probable this month unless Friday's CPI release brings a substantial downside surprise." The Federal Open Market Committee itself remains divided on the path forward. At its July 28-29 meeting, three of its members voted in favor of a rate increase, signaling internal disagreement over monetary policy direction. Regarding the upcoming August Consumer Price Index data, a separate Reuters poll predicted a month-over-month increase of 0.4 percent following a 0.1 percent rise in July.
Year-over-year inflation is expected to hold steady at 3.4 percent. The Personal Consumption Expenditures Price Index, the Fed's preferred inflation measure, remains well above the central bank's 2 percent target and has persisted there for more than five years. Economists now forecast annual PCE inflation at 3.5 percent for 2026 and 2.4 percent in 2027, with these estimates unchanged from last month's projections.
Inflation is not expected to return to the Fed's 2 percent target before 2028. Unemployment is projected to remain near 4.1 percent. The political dimension of monetary policy has intensified, as above-target inflation creates pressure on President Donald Trump's Republican allies ahead of November midterm elections.
Trump, who has one of the lowest approval ratings on record, has recently threatened wide-reaching trade restrictions unless the Fed cuts rates. Source: Reuters poll (September 4-9, 2026), reporting by Indradip Ghosh, with polling and analysis by Aman Kumar Soni and Sarupya Ganguly.
Source: reuters.com