Fed Watch – 9/18/2026

The below transcript is a literal translation of the podcast audio that has been machine generated by Adobe Podcast.

The new rate raising cycle is underway, this is ITR Economics Fed Watch. And I’m back, I’m Lauren Saidel-Baker back from maternity leave. I know you were in great hands with Connor and Mike in my absence, but I do have a few bones to pick over their interest rate calls. We did, in fact, see that 25 basis points hike in this week’s meeting at the Federal Reserve. And I have been wrong in the past about rate calls, but I’m only wrong to the other side. So, I guess I firmly established my place here at ITR as the hawkish member of our Fed watching team.

But I especially want to point out Mike’s episode. If you didn’t watch last week, he really made a lot of the case for this interest rate cycle. Just a quick refresher, inflation is the big thing that we’re watching here. So, in my mind, that August CPI report, that was the final nail in the coffin for this rate hike. We are at this point that inflation is so persistently above the Fed’s target and not showing signs of cooling off. They really had to do something here. Now, we’ve talked a lot about inflation and why we at ITR see elevated pricing pressures going forward. I do want to point out we think inflation will ebb a little bit in 2027. So, some modest disinflation next year. But I still don’t see us going below that 2% level. And in 2028 we see massive increase, so the next round of inflationary pressures starting to pick up steam, that’s going to be with us for really the foreseeable future, leading right up until the end of this decade. So, it’s important to know, this interest rate increase, this is not the only one we’re likely to see. I’m really viewing this week’s decision as something of an inflection point in rate policy, we’re in the next round of rises and likely to see more from here.

Now, the timing of this rate increase was notable. Leading up to this decision, there was a lot of speculation that for political pressures, we might not see rates go up, at least not yet. The biggest driver of this timing is the upcoming midterm elections. So, a lot of speculation that policy makers wouldn’t want to shake the boat this close to the midterms. Clearly that didn’t happen. The Fed is an independent organization, this is a nonpartisan, apolitical entity. And in my mind, by raising rates this week, they really maintained their credibility. They want to establish that firm link with the markets that the market can trust what they will do, absent any political pressures. So, keeping that confidence is going to be critical going forward, especially as we do have a heavier hand on the political scale from this administration than is typical. The real risk here is that the loss of Fed independence, counterintuitively, it could actually cause market rates to go even higher. If the market doesn’t have the confidence that the Fed can, in fact, keep their hands out of the political pie, keep these decisions firmly cemented in the economic world. Well, they could lose that confidence, and we could see inflation expectations get much higher, and that would of course translate into actual market rates, those supply and demand balanced rates that we see for actual borrowing costs.

So, the real question is where do we go from here? Clearly one 25 basis point rate change, that is not going to move mountains. That is not going to significantly change the economic landscape. But the path of interest rates going forward, that’s where things get more interesting. Of the eighteen members of the Federal Reserve who issued their economic projections, we saw sixteen of them expect at least 25 more basis points of rate rise this year. And four members are calling for a full 50 basis points of increase. Clearly, 2027 will carry that theme forward. So, we’re looking at higher rates. I’ve been calling for this for a long time. I will be transparent, I’ve been probably calling for it for too long, I have been wrong to the other side of things, expecting rates maybe to move up, or at least not down in the past. But now that we’re here, now that we are in this rate increasing cycle, it is not over with one 25 basis point move. So, if this matters for you and for your business, if you are interest rate sensitive, hopefully you saw this signal coming and hopefully you can seize on the moment before we do see more substantial increases in the future. We’ll be following that future path right here on ITR Economics Fed Watch. I hope you’ll join us. Until then, take care.