Probability of a Fed Rate Hike in September Rises to 90%, but a Single Hike Alone Is Hard to Sustain
nashnova research
August core CPI rose 0.3% month-on-month, beating expectations, and markets now price a 90% chance of a September Fed hike — This means → the debate has shifted from *whether* to hike to *how far* the cycle will go.
What did the August inflation print actually say?
Core CPI came in at 2.4% year-on-year, the lowest in five and a half years — but the month-on-month reading hit 0.3%, the biggest in four months and above consensus.
This means → the annual trend is cooling while the monthly pace is reheating. Those two signals clash, making it hard for the Fed to stand pat on a "mission accomplished" narrative.
After the release, investors repriced cumulative hikes through June next year from two to at least three.
Why is "one-and-done" almost impossible?
Former Fed Vice Chair Richard Clarida, now at Pimco, was blunt: "If they hike next week, it is definitely not going to be one-and-done."
Fed Governor Waller likewise argued that a single 25-basis-point move is not enough to pull inflation back to the 2% target.
In plain terms = the internal consensus is clear — the current rate level is already too low, and one tweak cannot fix that. Once you start, you keep going.
WSJ reporter Nick Timiraos noted that since the 1990s, the Fed has stopped after a single hike only once — in 1997.
How do Fed officials describe the path ahead?
St. Louis Fed President Alberto Musalem argued for "earlier, more gradual, smaller" moves over "later, more abrupt, larger" ones.
He went further: the probability that inflation stays well above 2% over the next year to 18 months now exceeds the probability that it falls back to target.
San Francisco Fed President Mary Daly sketched two scenarios: one where past shocks fade and current policy suffices, another where shocks compound and the Fed needs adjustments far beyond 25 basis points.
She said scenario one was still her baseline in early August, but since then the two have been converging. This reflects a wobbling confidence inside the Fed about the inflation trajectory.
Walsch skips forward guidance — how does the market price that?
Fed Chair Walsch has long resisted forward guidance — the practice of telling markets what the central bank plans to do next — arguing it constrains policy flexibility.
Vincent Reinhart, chief economist at BNY Mellon and a former senior Fed official, warned: "Without advance framing, the market will naturally read the first hike as the start of a series — and you have no tool to push back."
This means → the less guidance Walsch offers, the more the market fills in a more aggressive hiking path on its own. A single hike gets amplified.
Point72 chief economist Dean Maki noted that Walsch already refused to submit dot-plot projections in June. Whether this quarter's dot plot fills the guidance vacuum will be the key signal for market pricing.
Will political pressure change the outcome?
President Trump has explicitly opposed rate hikes; Vice President Vance said he welcomes Fed "cooperation" on rates.
Treasury Secretary Bessent argues recent inflation stems from a supply shock — a disruption on the production side pushing prices up, not overheating demand — and that the Fed should not tighten now.
In plain terms = the White House wants rates to stay put, but the inflation data is forcing the Fed's hand — the tension between political pressure and economic reality makes reading this meeting's signal far more complicated.
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