The Federal Reserve’s September decision may be a close call, but traders are betting that policymakers will raise the federal funds rate, a target range for short-term interest rates, for the first time in more than three years.
Although President Donald Trump and some in his administration
have called for lower rates, economists believe a cut probably isn’t on the table. Instead, they said, the Fed’s decision is whether to hike or hold.Fed policymakers typically raise the benchmark for short-term interest rates across the country to tame inflation and lower it to stimulate the job market. So far in 2026, they have chosen to leave it unchanged at a range of 3.5% to 3.75%.
Ahead of the September meeting, inflation was rising faster than workers’
paychecks, and hiring rebounded, with U.S. employers adding 162,000 jobs in August. Fed Chair Kevin Warsh on Aug. 28 described the labor market as “stable” and said policymakers should be focused on rising prices.
“Price stability is not self-executing,” Warsh said. “It is the Fed's job to deliver stable prices.”
As of Sept. 13, most traders, according to CME FedWatch, were betting that the Federal Open Market Committee will raise the federal funds rate by a quarter-point on Sept. 16. While traders were more divided on what the committee will do at its final two meetings this year, a little more than half predicted that it would leave the range at 3.75% to 4% in October, and a little less than half are betting it will raise it to 4% to 4.25% in December.
Fed watchers will soon get more clarity on where officials believe the federal funds rate is headed as the September decision is expected to be released alongside the FOMC’s Summary of Economic Projections. That quarterly report includes committee members’ projections for the appropriate path for interest rates. No fan of letting markets know what he’s thinking, Warsh did not provide his own projections in June, but his colleagues did.
Why would the Fed raise its benchmark for interest rates?
While year-over-year consumer price inflation has come down since peaking at 9.1% in 2022, it stood at 3.4% in August, still above the Fed’s 2% annual target.
Several factors are behind its stubbornness. Aside from post-pandemic sticker shock that never went away, the Iran war, tariffs and the AI buildout are contributing to the rise in prices American consumers are experiencing at the gas pump, grocery store, and nearly everywhere else.
After Labor Department data on Sept. 11 showed that consumer costs rose again in August, several experts said the new numbers would likely be enough to push the Fed to raise the target range at its next meeting. Analysts from Bank of America Global Research, KPMG Economics and Oxford Economics noted that while a hike is not guaranteed, the data strengthened the case for an increase.
“Will their broad reading of economic conditions remain sufficiently benign for them to hold steady for now or will the moderate reacceleration in inflation represent a tipping point that nudges them to hike? That’s the question,” Jim Baird, Plante Moran Financial Advisors chief investment officer, said in a note to USA TODAY. “If policymakers choose to stand pat again, the questions surrounding what they’re waiting for will become louder and more direct.”
Why would the Fed leave the rate unchanged?
Despite stubborn inflation, a September rate hike is not a “slam dunk,” according to Mike Skordeles, Truist Advisory Services' head of U.S. economics.
While gas prices were not the only thing that got more expensive last month, their 3.9% increase helped drive August's rise in consumer inflation. Fed policymakers have historically tended to look through supply shocks, such as those stemming from constrained oil supply linked to the Middle East conflict and the Russia-Ukraine war, because they cannot directly control them. However, they tend to be more likely to respond when those supply shocks start raising the cost of other things.
In addition, markets have already pushed long-term rates higher. At the Fed’s last meeting in July, Warsh suggested that markets may be doing some of the FOMC’s inflation-fighting work for it, pointing to higher nominal and real yields across the Treasury curve.
“The hike-hold debate is rather close,” Skordeles said. “There are a lot of reasons to go in either direction.”
When was the last time the FOMC changed its rate?
In 2024 and 2025, the Fed followed a similar pattern. In both years, the Federal Open Market Committee left the target range alone until voting to change it in September and at its two meetings that followed. What’s different is that back then, the FOMC lowered the range. Now, it’s contemplating raising it.
If committee members were to approve a hike, it would be the first time they opted to do so since July 2023. At that time, U.S. employers added an estimated 209,000 jobs and year-over-year consumer price inflation stood at 3% the month before.
While the committee has left the federal funds rate unchanged this year, three of its 12 voting members dissented from that decision at its most recent meeting. In July, Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan preferred to raise the target range by a quarter-point.
“Both the hard data and the anecdotes are telling me the same thing: Policy is not restrictive. Inflation is too high – and the longer it stays above our objective, the harder it will be to bring it back down,” Hammack said in a Sept. 4 LinkedIn post. “I'll keep paying attention to the data and listening to the anecdotes. Right now, what I'm hearing is that it's time to act.”
What would a rate hike mean for American consumers?
In general, the Fed raising its benchmark rate can lead to higher interest rates on credit cards, auto loans, and personal loans for borrowers. For savers, it typically means higher returns on their high-yield savings accounts and certificates of deposit.
If the FOMC approves a hike on Sept. 16, borrowers with variable-rate debt will probably feel the impact first, according to Rodney Williams, SoLo Funds’ co-founder and president. He said credit card APRs could rise within one to two billing cycles, increasing minimum payments, while HELOC and variable personal loan payments could climb as their rates reset.
“Adjustable-rate mortgage borrowers may be temporarily protected, but it’s very likely they could face higher payments at their next scheduled adjustment,” Williams told USA TODAY. “For Americans already living paycheck to paycheck, even a modest increase will ultimately make it harder to pay down existing debt while still being able to cover essentials.”
A rate hike would also mean savings yields move higher over time, but not every bank or credit union adjusts their rates at the same pace, according to CJ Pointkowski, Navy Federal Credit Union’s assistant vice president of deposit products operations.
“Rather than trying to perfectly time market movements, savers tend to be better off reviewing their accounts often, making their moves when they find a competitive rate that works for them, continuing to pay attention, and staying flexible so that they can take advantage of rates that work for their goals,” Pointkowski said.
Reach Rachel Barber at rbarber@usatoday.com, follow her on X @rachelbarber_, and subscribe to her newsletter "Making More of Your Money" here.
This article originally appeared on USA TODAY: Is it finally time? Why the Fed may raise rates for first time since 2023.
