The Federal Reserve announces its interest rate decision this afternoon at 2 p.m. Eastern, and for the first time in years the smart money is betting on a hike rather than a cut or a hold.
Going into this two-day meeting, the Fed's benchmark rate sat at 3.50 percent to 3.75 percent, a level it had held since late July, when policymakers voted 9 to 3 to keep rates unchanged. That range had reflected a economy where inflation was, by most measures, heading in the right direction: government data showed consumer prices cooling to 3.4 percent for the year ending in July, with core inflation, which strips out food and energy, easing to 2.5 percent.
Since then, the picture has shifted. Fed Chair Kevin Warsh used a speech at the central bank's annual Jackson Hole retreat in late August to signal openness to tighter policy, and futures markets tracked by CME Group's FedWatch tool now put the odds of a quarter-point increase, to a new range of 3.75 percent to 4.00 percent, at roughly 93 percent. The shift comes as energy prices have climbed sharply in recent weeks, a development tied to tensions in the Middle East, and policymakers appear increasingly worried that pricier oil could feed back into broader inflation just as it seemed to be cooling.
Today's meeting is also one of four each year that comes with an updated Summary of Economic Projections, the so called dot plot, showing where each Fed official expects rates to head next. Investors will watch that as closely as the rate decision itself, since it will shape expectations for the rest of 2026. Chair Warsh holds a press conference at 2:30 p.m. Eastern to explain the committee's reasoning.
Markets will parse both the size of any rate move and the tone of the dot plot for hints about whether this is a one-time adjustment to handle an energy price shock or the start of a longer tightening cycle.
Why would the Fed raise rates instead of cutting them?
Rising oil and energy prices tied to tensions in the Middle East have raised concerns that inflation could reaccelerate, even though earlier data showed price growth cooling.
Who is the current Fed chair?
Kevin Warsh, who signaled openness to a rate increase in a late August speech at the Fed's Jackson Hole conference.