Fed set for September hike as inflation refuses to cool, but the path beyond splits analysts
15 SEPT, 2026
By Joanna Piwko from RankiaPro Europe
Markets head into this week's Federal Reserve meeting with unusually high conviction: after a hotter-than-expected August inflation print, pricing has shifted decisively toward a 25 basis point rate increase, the first in a tightening move that analysts across Europe's asset management industry broadly expect — even as they diverge sharply on what comes next.
The consensus call
The trigger was August's US CPI report, which came in above expectations on both headline and core measures. François Rimeu, senior strategist at Crédit Mutuel Asset Management, noted that core prices climbed 0.3% month-on-month, reinforcing the case for the Federal Open Market Committee (FOMC) to lift the federal funds target range to 3.75%-4%. Tiffany Wilding, economist at PIMCO, echoed the shift, saying the fund now expects the Fed to raise rates by 25 basis points in September, with the possibility of a few more hikes ahead. At UBS Global Wealth Management, CIO Mark Haefele and economist Andrew Dubinsky likewise pencilled in a September move as part of what they framed as a 50bp recalibration cycle running through December.
Sebastian Paris Horvitz, head of research at LBP AM (a shareholder of LFDE), put the market-implied probability of a move above 90%, arguing the Fed is 'almost forced' to raise rates despite the political awkwardness of acting during the run-up to November's midterms. Felipe Villarroel, partner and portfolio manager at TwentyFour AM (Vontobel), agreed 25bp is the 'most likely outcome,' while cautioning that the real question isn't the current inflation print but whether price growth returns to target quickly enough to stop expectations from becoming unanchored.
Inflation dynamics and the Warsh factor
Several commentators pointed to the specific composition of the CPI beat. Wilding attributed much of the surprise to a sharp rise in wireless services prices, noting that excluding that category, core inflation would have landed closer to consensus. Luca Simoncelli, investment strategist at Invesco, flagged that August's core CPI rose 0.29% month-on-month, driven by airfares and services such as healthcare and education, pushing the Fed's preferred PCE gauge toward 3.1%-3.2% annually.
The figures land against the backdrop of Chair Kevin Warsh's hawkish turn at Jackson Hole, where he stressed that inflation had run too hot for too long. Paolo Zanghieri, senior economist at Generali Investments, argued that the August data 'clearly tilts the balance' toward a hike, but warned that Warsh's communication choices this week carry risk either way: too cautious a tone could dent Fed credibility after a disappointing Treasury buyback operation, while an overly hawkish message could fuel expectations of a longer hiking cycle and push short-term yields higher.
What to watch: the dot plot and forward guidance
With Warsh reluctant to offer explicit forward guidance, most analysts agree the real signal will come from the updated Summary of Economic Projections and dot plot. Rimeu noted markets are pricing an additional hike before year-end plus one or two more in 2027, while Simoncelli said Invesco expects the median dot to show just one further 2026 hike — though he cautioned the margin is thin and a two-hike signal remains a live risk. Anthony Willis, senior economist at Columbia Threadneedle Investments, framed the debate as centring on rate path 'higher for longer,' pointing to rate-hike odds that peaked near 93% before settling around 87%.
Geopolitics, oil and bond market stress
Beyond the Fed itself, several notes flagged the Middle East as a live wildcard. Villarroel pointed to oil prices, lifted by regional tensions, as adding to price pressure alongside a resilient US economy. Paris Horvitz described LBP AM's base case of a 'protracted stalemate' in the US-Iran standoff, keeping energy flows constrained at least through the US election cycle, with Brent above $105 and European gas near record highs. Simoncelli linked the same dynamic to a bear-flattening of the Treasury curve, with the 10-year yield brushing 5% — its highest level since 2023 — partly exacerbated by a soft Treasury buyback result.
The bottom line
Views diverge on what happens after September. PIMCO's Wilding stressed the CPI report 'did not materially change' the firm's inflation outlook and left open the possibility that further hikes may not materialise if data continues to improve. Paris Horvitz, by contrast, expects a second hike in December, taking rates into restrictive territory above 4% by year-end. For equity investors, Willis argued the environment calls for careful positioning rather than outright pessimism, while Haefele reiterated a constructive equity stance built around AI, energy and longevity themes, favouring diversification over concentrated bets on a handful of large tech names.
Sources: Generali Investments, LBP AM/LFDE, Columbia Threadneedle Investments, TwentyFour AM (Vontobel), Crédit Mutuel Asset Management, PIMCO, UBS Global Wealth Management, Invesco.
