Gaming the Fed Odds for a Rate Hike Wednesday

Tuesday, September 15th, 2026

We do have some market-oriented news this morning, but nothing that could be expected to potentially move the needle in the stock market with the same impact of tomorrow’s Fed decision. This will conclude the two-day Federal Open Market Committee (FOMC) meeting at 2 pm ET Wednesday, followed by a press conference from Fed Chair Kevin Warsh.
 

Odds of a Fed Hike Currently +90%

The doves voting at this FOMC meeting must feel they are really swimming upstream. A heavy bias toward raising the Fed funds rate 25 basis points (bps) to +3.75-4.00% — which would be the first move on rates since December of last year — has now reached +90%. Tariff policy and oil prices since the war with Iran have taken inflation levels well above the optimal +2.00%, and now bond yields are +5% or higher on the 10-year and the 30-year. The 2-year yield, at +4.65%, is still 90 bps above the high end of interest rates currently.

Yet we know how President Trump feels about the Fed not moving quickly to reduce rates — he kept a year-long verbal attack campaign against previous Fed Chair Jerome Powell, including threatening him with criminal charges. Fed Governor Lisa Cook, like Powell, had been called to resign from the Fed by Trump; Cook has since sued the White House, and the Supreme Court has ruled she cannot be removed from her position until the case resolves.

Thus, we may want to pencil-in Kevin Warsh as a “keep rates steady” vote. Of the other voting members who appear clearly dovish, Fed Governor Chris Waller and New York Fed President John Williams seem to fit the bill. But that’s it, at least obviously. The FOMC needs a quorum of seven votes to enact new monetary policy. Check the other side of the ledger: Presidents Kashkari, Hammack and Logan all voted for a rate hike at the last meeting in July.

Assuming Powell and Cook vote to hike, that leaves only two votes remaining to get to seven. Fed Governors Jefferson and Barr are fairly inscrutable on this issue, so we won’t put them in either column. The two remaining active voters for this FOMC meeting are Fed Governor Michelle Bowman and Philadelphia Fed President Anna Paulson. Bowman dissented from a -50 bps cut a year ago — a hawkish stance — and Paulson is considered to lean hawkish. That would be seven votes, and it would bear out the +90% possibility of a hike tomorrow.

Perhaps we’ll see Warsh and the others join along and vote for a rate hike, so as not to break precedent with a Fed Chair being offsides with the rest of his committee. Let’s suppose it depends on how much Warsh is willing to face the slings and arrows from the White House. During Powell’s tenure — and that of Janet Yellen and Ben Bernanke previously — we’d look toward the presser for an articulated defense of the Fed’s decision. But after two FOMC press conferences, it’s clear that Warsh keeps his cards close to the vest when speaking with the press pool.

Therefore, we don’t really look too closely into the Fed decision itself, and turn toward what the market reactions will be — both the stock market and bond market. With a +90% certainty, elements of the rate hike are already baked into the cake. Any unforeseen twist to these expectations might set a different tone in trading sentiment.

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