Markets price 93% probability of Fed rate hike on Wednesday, September 16
Markets are pricing a 93% probability that the Federal Reserve will raise its benchmark interest rate by a quarter point at its September 16, 2026 meeting, bringing the federal funds rate to 3.75%-4.00%. This follows U.S. core inflation data exceeding expectations, with swaps now fully pricing in two rate hikes by year-end. Bond traders show near-unanimous conviction, and analysts note the Fed has always followed through when market expectations reached such levels.
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Bond traders are certain the Federal Reserve will raise interest rates on Wednesday
Bond traders are highly confident that the Federal Reserve will raise interest rates at its upcoming Wednesday meeting, with market expectations reaching levels not seen in decades. Data compiled by Bloomberg since 2008 indicates that whenever market expectations for a rate hike have been this high, the Fed has always followed through. Caesar Maasry, director of investment research at Lunate, noted that the market is not leaving room for a dovish rate hike scenario. Alex Cohen, currency strategist at Bank of America, described the upcoming Fed decision as the most consequential in a while, adding that with expectations of a rate hike reaching around 90%, it would be almost unprecedented if the Fed left rates unchanged. The article highlights the strong conviction among bond traders and analysts that the Fed will act decisively.
Fed Hike Odds Hit 93%: Three Things That Could Surprise Markets on Wednesday
The article reports that markets are pricing a 93% probability of a quarter-point Federal Reserve interest rate hike on Wednesday, September 16, 2026, which would bring the federal funds rate to 3.75%-4.00%. This would be the first rate increase since July 2023. The analysis focuses on three potential surprises beyond the hike itself: first, whether the updated dot plot signals additional hikes before year-end, with 22V Research's Peter Williams expecting one more hike in 2026 and Bank of America's Aditya Bhave forecasting 75 basis points of tightening by end-2026. Second, whether the Fed's economic projections show higher growth and lower unemployment, which could give the Fed room to continue raising rates. Third, whether Chair Kevin Warsh opens the door to a rate hike at the October meeting during his press conference, with Polymarket traders currently placing 62% odds on no change in October and 57% on a December hike.
Read sourceTraders Boost Fed Rate Hike Bets After U.S. Core Inflation Exceeds Expectations, Swaps Show
Following the release of U.S. core inflation data that came in higher than anticipated, traders have significantly increased their bets on Federal Reserve interest rate hikes. Markets are now pricing in a 90% probability of a rate increase at the Fed's meeting next week and have fully incorporated two rate increases by the end of the year. According to interest rate swap data, traders have raised their expectations for rising benchmark rates in the coming months. This shift in market sentiment is driven by the belief that persistent price pressures may compel the Federal Reserve, led by Chair Kevin Warsh, to take action to tighten monetary policy.
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Markets Bet on Two Fed Rate Hikes This Year After Core Inflation Exceeds Expectations
On September 11, following the release of U.S. core inflation data that exceeded expectations, interest rate swap markets significantly raised their expectations for Federal Reserve rate hikes. Current market pricing indicates a 90% probability of a Fed rate hike next week, with two rate hikes by the end of the year already fully priced in. David Rees, Global Head of Economics at Schroders, commented that the Federal Reserve is behind the curve. He stated that the Fed can choose to raise rates next week, allowing U.S. short-term borrowing costs to rise in an orderly manner, or it can hold steady, but that risks an uncontrolled surge in U.S. long-term borrowing costs. The report highlights growing market conviction that the Fed will act aggressively to combat persistent inflation.
Read sourceTraders See 90% Probability of Federal Reserve Rate Hike Next Week
According to a report from tradealpha, traders currently expect the probability of a Federal Reserve interest rate hike at its meeting next week to be around 90%. This forecast reflects market sentiment and pricing of short-term interest rate futures, indicating a strong consensus among market participants that the central bank will raise its benchmark rate. The expectation is based on recent economic data and Federal Reserve communications, though the actual decision will be announced following the Federal Open Market Committee meeting.
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