The Fed Moves The Punch Bowl

Market Commentary – September 21, 2026

At the September 16 meeting, the Federal Open Market Committee (FOMC) under Federal Reserve (Fed) Chair Kevin Warsh made the decision to raise the fed funds rate by 25 basis points to the range of 3.75%-4.00%, the first rate hike in three years.

The move was supported unanimously by the Board. The dot plot (which Chair Warsh did not participate in) had 16 of 18 forecasters expecting another rate hike this year. Chair Warsh outlined the following rationale for the rate hike:

Warsh noted in his press conference that, since the last FOMC meeting, the U.S. labor market looked solid, inflation trends remained concerning, and geopolitics were othersome. Those factors helped swing the committee toward the rate hike decision.
Financial conditions were not believed to be restrictive. Warsh described the neutral rate concept as “academic,” indicating a degree of fuzziness around where that number is. Even with the September hike, the policy rate is probably still in the neighborhood of neutral,
since there was not a strong consensus on whether we were looking at accommodation or restriction.
Warsh described the action as reducing a dose of accommodation. Taking that framework at face value, what the FOMC appears to be doing in 2026 is taking back the rate cuts that were made in 2025.
Warsh noted that competition for capital, especially from the tech hyperscalers, could be affecting the U.S. bond market (i.e., driving yields up somewhat).
Warsh was not interested in prejudging decisions by other foreign central banks. But the price pressures seen domestically are clearly evident globally. Other global central banks, such as the European Central Bank (ECB), have already begun an interest rate hike cycle.

Conclusion of FOMC meeting: The Fed believes the economy is expanding at a solid pace with the labor market at full employment. Inflation has remained elevated and the Fed is now focused on price stability. There were three rate cuts last year, so by that logic, there could be up to two more rate hikes in the coming months. One more rate hike is expected this year and another possibly next year, removing the accommodation from 2025.

It is important to remember that monetary policy operates with a lag of 12 to 18 months. But it is clear that the Fed is taking away the punch bowl and the move should have an impact — but not quickly.