At dawn on September 17th, Beijing time, the Federal Reserve will release its September Federal Open Market Committee (FOMC) meeting decision. It's becoming increasingly difficult to find anyone willing to stand in the way of a Fed rate hike this week. Entering the new week, analyst expectations have shifted significantly—especially after last Friday's US CPI report, continued US-Iran tensions, and further increases in long-term bond yields. Goldman Sachs, JPMorgan Chase, and HSBC have all shifted their expectations to a 25 basis point rate hike in September, previously predicting the Fed would keep rates unchanged. For some institutions, September no longer seems like a one-off event.

Three major investment banks have collectively shifted their focus: Goldman Sachs, JPMorgan Chase, and HSBC all expect an interest rate hike in September.

HSBC now expects the Federal Reserve to raise interest rates by 25 basis points each in September and December. JPMorgan Chase has made the same adjustment, moving its previous expectation of a December rate hike to September. Goldman Sachs' stance is slightly more dovish, now expecting a 25 basis point rate hike this week after previously keeping its forecast unchanged. But perhaps the more interesting part of its argument is not the inflation data itself, but what the market is already anticipating. Goldman Sachs economists stated, "We believe the FOMC will be reluctant to create surprises." This is crucial—when the market has already priced in about an 87% probability of a rate hike, keeping rates unchanged will be a much stronger policy signal than usual.

Why the consensus shifted so quickly: driven by a triple force of inflation, oil prices, and yields.

Looking at it from another angle, recent market developments are also a key reason for the rapid shift in consensus. Last week's inflation figures were strong enough to cast doubt on whether the disinflationary trend was truly sustainable; meanwhile, oil prices have broken through $100 per barrel again, and US Treasury yields remain near multi-year highs. JPMorgan economists summarized this shift as a week of "rising bond yields, rising energy prices, and inflation data strong enough to make a September rate hike more likely than impossible." The hawkish shift is beginning to extend further. Deutsche Bank, which already anticipated rate hikes in September and December, has now added a 25 basis point hike in March 2027 to its forecast.

A bigger point of interest: Is the interest rate hike a safety measure or the start of a new round of tightening?

This may be the bigger story leading up to Wednesday. A September rate hike is rapidly becoming the consensus expectation. For the market, the more important question is whether the Fed views this rate hike as an "insurance" measure to combat inflation, or the start of another tightening cycle. If the former, the dollar may "buy the rumor, sell the fact" after the rate hike; if the latter, the dollar's strength will receive more sustained support. The market has already heavily priced in a 25 basis point rate hike by the Fed on Wednesday, with a probability approaching 90%. However, what truly determines the subsequent dollar trend is not the rate hike itself, but the Fed's characterization of its nature and its forward guidance. If the Fed under Warsh positions this action as an "insurance" rate hike to address inflation stickiness—that is, a one-off or limited action aimed at consolidating credibility rather than initiating a sustained tightening cycle—then the market may exhibit a typical "buy the rumor, sell the fact" reaction after the rate hike, with the dollar rising briefly before falling back, and the dollar's appreciation against major currencies limited. Conversely, if the statement or dot plot suggests that the rate hike is only the beginning of a new round of tightening, emphasizing that inflationary trends still require further policy response, the dollar will receive more sustained support, and the yield curve and interest rate differential advantage will be further strengthened. Traders should pay close attention to the wording of the post-meeting statement, Warsh's remarks at the press conference, and any ambiguous or explicit signals regarding the future path, as these will directly determine the medium-term direction of the dollar.

Editor's Summary

Major Wall Street investment banks have collectively shifted their expectation to a Federal Reserve rate hike this week, with the market pricing in a near 90% probability. Sticky inflation, rising oil prices, and climbing yields are the core factors driving this shift in consensus. The greater focus lies in defining the nature of this rate hike—whether it's an insurance measure or the start of a new round of tightening—which will determine the sustainability of the dollar's subsequent movement and the market's reaction.

Frequently Asked Questions

Q: Why have Goldman Sachs, JPMorgan Chase, and HSBC collectively shifted their expectations to a September rate hike? A: Last Friday's core CPI exceeding expectations, oil prices breaking $100/barrel, and rising US Treasury yields collectively reinforced the assessment of sticky inflation. Goldman Sachs emphasized that the market has already priced in about an 87% probability, and maintaining the current rate would create a surprise; JPMorgan Chase pointed out that core inflation progress has been limited, making an earlier rate hike more reasonable. Q: What is the current market's pricing probability of a September rate hike? A: The CME FedWatch Tool shows that the probability of a 25 basis point rate hike in September is about 87% to nearly 90%, significantly higher than a week ago. This reflects a rapid repricing driven by both data and geopolitical factors. Q: What is the difference between a rate hike as "insurance" and the start of a new round of tightening? A: If it is positioned as an insurance measure, a "buy the rumor, sell the fact" scenario may occur after the rate hike, with the dollar rising and then falling in the short term; if it is seen as the start of a new round of tightening, the dollar will receive more sustained support, its interest rate advantage will strengthen, and its medium-term appreciation potential will expand. Q: What are the differences in Deutsche Bank's forecast? A: Deutsche Bank not only expects rate hikes in September and December, but also added a forecast of a further 25 basis point hike in March 2027, indicating a longer-term concern about persistent inflationary pressures and a more hawkish stance than most institutions. Q: What signals should traders focus on this week? A: Pay close attention to the wording of the post-meeting statement, Warsh's remarks at the press conference, and the hints the dot plot gives about the future path. These will directly determine the market's interpretation of the nature of the rate hikes, thus affecting the medium-term direction of the US dollar.