Federal Reserve Chairman Kevin Warsh faces a thorny voting battle this week, needing to work with other policymakers to determine the direction of interest rates now and in the near future. The market has largely priced in a 25-basis-point rate hike at Wednesday's meeting, but significant disagreements exist among the 12 voting members of the Federal Open Market Committee, making the final vote margin unclear. Meanwhile, the wording of Warsh's policy statements will be crucial. Former New York Fed President Bill Dudley has offered his assessment of the meeting.

Market pricing has heavily favored interest rate hikes, with inflation data becoming the core driver.

Bill Dudley stated, "The market has already priced in this, and if the Fed ultimately holds off, it will be a huge surprise to the market. This would severely damage the Fed's credibility, amounting to just making empty threats without taking any real action." As of Monday afternoon, the CME FedWatch Tool showed that futures traders were pricing in a greater than 92% probability of a rate hike this time, and a greater than 75% probability of another rate hike by the FOMC in December. The current federal funds rate remains in the 3.50% to 3.75% range. This high expectation of a rate hike stems from the renewed rise in refined oil prices, coupled with the August inflation report showing continued price increases. Previously, Warsh stated at the Jackson Hole conference that unless there is clear evidence that inflation is persistently falling back towards the 2% target level, the Fed will have to take action to raise interest rates. However, there are many contradictions in the current policy choices. Historically, the Fed has typically ignored inflation fluctuations caused by short-term disturbances. Economists generally believe that a large part of this year's inflation rise comes from tariffs and the energy supply shock caused by the situation in Iran, and the impact of these factors on long-term inflation trends is uncertain. Goldman Sachs economist David Mericle stated in a client research note, "We believe that economic fundamentals do not support raising the federal funds rate. The portion of inflation exceeding the 2% target is a one-off factor, and its impact will likely gradually diminish. " Even so, Goldman Sachs adjusted its assessment, shifting from expecting rates to remain unchanged to anticipating a rate hike. The core reason given is that strong market expectations of a rate hike will force the Federal Reserve to take action.

The FOMC is internally divided, with a fierce struggle between the wait-and-see faction and the hardliners.

Looking back at the July policy meeting, three regional Fed presidents—Lorie Logan of Dallas, Beth Hammack of Cleveland, and Neel Kashkari of Minneapolis—supported a 25-basis-point rate hike. If their positions remain unchanged, it means four more members would need to shift their stance from supporting a pause in rate hikes to supporting a rate increase. The most closely watched voting member is Governor Christopher Waller. In a public statement on September 3, he favored maintaining the current interest rate at this meeting, while retaining the premise of observing data and confirming a cooling inflation trend. He advocated patience and not rushing to raise rates. He said, "What's the cost of waiting another meeting? A 25-basis-point rate hike now won't immediately bring the CPI back to 2%." In August, the overall CPI rose 3.4% year-on-year, while the core CPI, excluding food and soaring energy prices, was 2.4%, a slight decrease of 0.1 percentage points from July. Waller wasn't the only one supporting a wait-and-see approach; New York Fed President Williams also stated less than two weeks ago that a wait-and-see strategy was reasonable. Fed Governor Barr indicated that he could accept rate hikes if inflation continued to rise, but wouldn't pre-lock in a stance. Influenced by the Jackson Hole speech, the market generally anticipated Warsh would be on the side of rate hikes; Governor Cook stated in early August that he was prepared to raise rates to address inflation. Meanwhile, Philadelphia Fed President Anna Paulson and Chicago Fed President Austan Goolsbee advised maintaining policy patience. The remaining members include Vice Chairman Philip Jefferson, former Chairman Jay Powell, and Governor Michelle Bowman. Bowman had previously spoken in May expressing concern about the negative impacts of unnecessary rate hikes. Another key variable is whether, if Warsh insists on pushing for rate hikes, the members who were initially hesitant will vote in favor to maintain the Fed's unified public image. The voting results not only reveal the committee members' disagreement on whether inflation is a short-term disturbance or a persistent problem, but also test Warsh's leadership within the Federal Reserve. David Kelly, chief global strategist at JPMorgan Asset Management, said in his weekly market report: "It's worth noting that if the Fed raises rates this time, in hindsight, the vote may not have been so close. Once a majority of the committee reaches a consensus on raising rates, the remaining members are likely to agree, projecting a unified stance, and ultimately there may only be two, one, or even zero votes against."

The dot plot and the chairman's press conference will determine the subsequent market trend.

After the decision is finalized, market attention will turn to the Fed's updated dot plot. The dot plot anonymously records the expectations of the 19 participating members regarding future interest rates. Warsh did not submit his own interest rate expectations when the dot plot was updated in June. Investors will focus on the members' approval ratings for two rate hikes this year, as well as the interest rate outlook for 2027. This dot plot will also provide the first-ever interest rate forecast for 2029. The Fed's rate hikes or cuts are rarely single operations; policymakers believe that scattered, one-off rate adjustments have limited effects. David Mericle analyzed that if the vote is narrowly in favor of a rate hike (10 in favor, 8 against), it indicates that some members are skeptical of the rate hike and do not want to further push up market expectations for further rate hikes. He added that if more members believe that this rate hike is simply a routine operation to address rising oil prices and AI energy demand, and marks the beginning of a new rate hike cycle, then two rate hikes this year may receive majority support. If there is a significant disagreement in the committee vote, market focus will shift to Warsh's press conference, paying attention to how the Fed Chairman conveys the overall policy stance of the FOMC. Former New York Fed President Bill Dudley said, "The Fed needs to clearly articulate its assessment of the economy. Warsh must now deliver on his promises with action. If he does, the trust issues left over from the first two press conferences will be largely resolved."

Conclusion

While the market appears to have fully priced in the rate hike at this Federal Reserve meeting, internal divisions within the FOMC have introduced uncertainty into the voting outcome. The root of the disagreement lies in whether inflation will be driven by short-term energy factors or remain entrenched . The vote count, the latest dot plot, and Warsh's statements at the press conference will define the interest rate path for the remainder of the year, directly impacting the short-term performance of major asset classes such as gold, US Treasury bonds, and the US dollar. Even after the rate hike is implemented, the market will continue to interpret it, debating whether it is a single rate hike or the start of a new rate hike cycle.