The Federal Reserve will announce its interest rate decision on September 16, with the market widely expecting a 25 basis point hike, raising the target range to 3.75%-4.00%. This will be the first rate increase since July 2023, ending the previous cycle of rate cuts or inaction. Chair Walsh's hawkish statements are in direct conflict with the Trump administration's ongoing pressure for rate cuts.

The implied probability of a September rate hike in CME Fed Fund futures was only 58% on August 31, but rose to 92.7% by September 15. Deutsche Bank strategists noted that if the Fed chooses to remain on hold at this time, it would be the "largest dovish surprise in any scheduled meeting since 1994." Macquarie has brought forward its baseline forecast for the first 25 basis point hike from December to September, while Bank of America is also betting on a September hike, and UBS expects two rate hikes in 2026 (September + December).

Supporting the rate hike expectations are economic data: 162,000 new non-farm jobs were added in August, and the unemployment rate remained unchanged at 4.1%; the inflation rate over the past 12 months was 3.4%, still significantly above the Fed's 2% target. Two major factors driving up prices have been repeatedly mentioned: the Iran conflict causing a surge in global energy prices, and the ongoing AI capital expenditure boom pushing up price levels.

Walsh's political situation is particularly delicate: he was sworn in on May 22, 2026, becoming the first Fed Chair to be sworn in at the White House since Greenspan in 1987, with a Senate confirmation vote of 54 to 45, the closest in history for the position. Trump's initial choice of Walsh was explicitly to facilitate rate cuts, but at the Jackson Hole meeting on August 28, Walsh stated that inflation was "concerning" and that the Fed "still has work to do," which was interpreted by the market as a signal for a rate hike. Trump subsequently stated on social media: "High rates put America at a significant disadvantage, and I will not allow this to happen!" He called for the Fed Board to "change its style and be patriots," threatening to "stop trade with countries with trade deficits" if rates do not decrease.

Before the decision, the market showed signs of risk aversion: on September 15, the Dow closed down 0.6% at 52,092 points, the S&P 500 fell 0.5% to 7,585 points, and the Nasdaq dropped 0.8% to 25,981 points; the 10-year U.S. Treasury yield hit a 52-week high of 4.998% (reaching as high as 5.041% during the day), the 2-year yield was at 4.656%, and the 30-year yield was at 5.346%; WTI crude oil rose 3.2% to $103.29 per barrel. Cryptocurrencies and gold faced pressure simultaneously—after Walsh's hawkish statement on August 29, Bitcoin fell 3% in one day, dropping below $77,000, having previously rebounded from around $63,000 to above $80,000; gold also fell on the same day.

In terms of capital flows, this round represents a typical event-driven sell-off: the bond market continued to sell off as the probability of a rate hike rapidly increased, pushing yields to a 52-week high, reflecting investors re-pricing term premiums in light of war, tariffs, and capital competition among mega AI firms (in the words of Wells Fargo strategists); stock investors actively reduced risk exposure before the decision announcement; the strengthening dollar and real interest rates directly suppressed the attractiveness of gold and Bitcoin as "currency devaluation hedges." Beneficiaries are those holding cash and short-duration assets, as well as banks relying on interest rate spreads; those under pressure include leveraged growth stocks, crypto assets, and the Trump administration itself—its political narrative of "low rates ensuring housing affordability" (previously emphasized by Vice President Vance) is being directly contradicted by market pricing.

Source: Public Information