A research team at Natixis predicts that the Federal Reserve is highly likely to raise interest rates for the first time since Kevin Warsh took the helm. Meanwhile, the institution offers a different perspective: if inflationary pressures ease in the last quarter of 2026, this rate hike may be the only one in this rate hike cycle. Economists Christopher Hodge and Selin Aker, in their FOMC forward report, analyze that Fed Chairman Warsh will use this small rate hike to push inflation further down.

Core CPI data reinforces expectations of interest rate hikes; voting camps show underlying divisions.

Christopher Hodge and Celine Aker stated, "We expect the Federal Reserve to raise the policy rate ceiling to 4.0%, the first rate hike in three years and the first since Warsh became Fed Chair. We believe there will be very few dissenting votes at this meeting, but regional Fed Presidents Logan, Hammark, and Kashkari, who advocated for a rate hike in July, may vote against it, demanding a one-time 50 basis point increase." The two economists indicated that the higher-than-expected core CPI data essentially confirmed market expectations for this rate hike. In their report, they wrote: "Policymakers' tolerance for such short-term, one-off disturbances has clearly decreased. Although some of the factors driving inflation are beyond the Fed's control, persistently high inflation is a problem the Fed needs to address. Policymakers are signaling that the current situation is no longer tolerable. Chairman Warsh expressed dissatisfaction with the pace of inflation decline at the Jackson Hole conference in August, and the latest CPI data provides ample justification for his hawkish stance and subsequent rate hike." The report also noted that while the market cannot yet fully grasp Warsh's policy response logic, he has clearly stated that pushing inflation down is the Fed's responsibility, and it will use policy rate tools when necessary.

The dot plot suggests a slight upward revision of interest rate expectations; the divergent opinions of committee members weaken guidance.

Regarding the summary of economic projections, also known as the dot plot, Hodge and Ake expect no major changes overall. They stated, "The only expected change is an upward revision of the policy rate forecast to 4.1% by the end of 2026, which implies a possibility of another rate hike this year based on the median of the dot plot. However, the signal from the median will be weakened by the significant divergence in the committee's expectations, suggesting multiple possible directions for policy rates in the coming years." Regarding Warsh's post-meeting press conference, the two economists predict that the Fed Chairman will not provide clear guidance on future policy. They wrote, "We believe Warsh will characterize this rate hike as a measure to ensure inflation returns to the target range within a reasonable timeframe. He will also emphasize that this decision is an independent one and will not constrain policy choices at subsequent meetings, thus preserving maximum flexibility for himself and the committee to respond flexibly to various unforeseen shocks."

This round of interest rate hikes may only involve one increase; the inflation trend will be the core criterion for judgment.

Regarding whether the Federal Reserve will continue to raise interest rates, Hodge and Ake stated that the market should focus on inflation data in the coming months. They wrote, "We expect inflation data to gradually improve, so this rate hike is likely a one-off operation, meaning the only rate hike in this cycle. However, this is unusual; typically, once the Fed starts raising rates, it will raise rates multiple times in succession to effectively suppress price pressures. But this is not a typical policy cycle. The overall downward trend in inflation has not been broken; year-on-year data is still lower than the previous month, but the rate of decline is not meeting the Fed's requirements. Therefore, the Fed believes that this small rate hike alone can help push inflation down."

Conclusion

In summary, the biggest focus of this Federal Reserve meeting is not just whether a rate hike will be implemented, but also whether this hike marks the beginning of a new round of continuous rate hikes or a one-off policy adjustment . Natixis believes that the pace of inflation decline will be the core factor determining the future policy direction. Even though the dot plot implies the possibility of further rate hikes this year, the divergent expectations among committee members, coupled with Warsh's tendency to maintain policy flexibility, mean that the Fed will not lock in the future path in advance. If inflation continues to cool in the fourth quarter, this rate hike may come to an end. This atypical single-rate-hike scenario will also have different impacts on various assets such as the US dollar, US Treasury bonds, and gold.