Why This Rate Hike Probably Won’t Be the Last
When Federal Reserve Chairman Kevin Warsh was appointed, much of the market concern centered around whether he would push too hard for monetary easing—at a time when inflation was above target and the economy was growing steadily.
What a difference a few months of hot inflation can make.
August CPI showed prices rising 0.4% month-over-month and 3.4% year-over-year, and the Fed’s own September projections now put 2026 PCE inflation at 3.7% and core PCE inflation at 3.4%, both well above its 2% target.1
CPI (blue line) and the PCE Price Index (Green Line) Have Been Pressured Higher in 2026
I want to be fair in making the point that the numbers do not suggest inflation is spiraling out of control, especially given the outsized impact of higher energy prices. But we’re certainly seeing an end to the downward trajectory that started in the summer of 2022, with recent price pressures being enough to motivate all 12 of the Fed’s voting members to push rates higher.
History tells us we should expect more hikes from here.
Federal Reserve rate changes tend to be serially correlated, meaning policy moves often come in sequences rather than isolated steps. Looking at actual changes in the federal funds target since 2003, there have been 60 rate changes. On the 59 occasions when one change was eventually followed by another, 52 of them—or roughly 88%—moved in the same direction as the prior change.3 In other words, a hike is almost always followed by another hike, with the same going for cuts.
The individual cycles make the pattern easier to see. The Fed raised rates 17 consecutive times from 2004 through 2006. It then delivered 11 hikes across 2022 and 2023. More recently, the Fed cut rates six consecutive times across 2024 and 2025 before reversing direction last week. This serial correlation is sometimes referred to as “interest-rate smoothing,” with central banks generally preferring to adjust policy incrementally as they receive new information about inflation and growth—rather than making one large move and immediately reversing course.
The Fed’s own projections point in the same direction today. Following this week’s increase, the median policymaker projection puts the federal funds rate at 4.1% at year-end, compared with the current midpoint of 3.875%. 16 of 18 policymakers expect at least one additional increase before year-end.
For investors, the big picture shows us a world where financial conditions are gradually being tightened. The European Central Bank and Bank of Japan have recently raised rates, while the Bank of England has adopted a more hawkish posture as energy prices and inflation remain elevated. It looks to me like a renewed global tightening cycle, which I think could have implications for equity market volatility (as I wrote about recently).
It’s a trend worth watching closely, though I expect this tightening cycle to be far less aggressive than what investors experienced in 2022 and 2023. In other words, not enough to derail the bull market. The larger questions remain whether inflation continues to moderate, whether economic and earnings growth hold up, and whether tighter policy eventually begins to materially weaken demand. When I zoom out and take it all into consideration, I don’t think two or three quarter-point hikes are meaningful enough to materially change the earnings or economic backdrop on their own.
Bottom Line for Investors
This week’s quarter-point rate hike was widely expected, and I do not think investors should overhaul portfolios because the federal funds rate moved 25 basis points higher. The more interesting signal is the direction of policy. Fed rate changes have historically tended to come in sequences, the central bank’s own projections point to additional tightening, and other major central banks are confronting many of the same inflation pressures. It’s something to watch, but probably not enough to fundamentally alter the investment landscape, in my view.
The final takeaway that I think deserves attention is the idea that pressure could/would compromise Federal Reserve independence. In my view, the rate hike decision provides a useful piece of evidence in the other direction. With midterm elections approaching and the administration openly favoring lower borrowing costs, the Fed still voted unanimously to raise rates in response to inflation. That looks like a central bank responding to economic data, not political pressure. This point becomes even more salient if the Fed decides to raise rates again from here, which I believe will be the case.
Disclosure
2 FRED Fred Economic Data. September 11, 2026. Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
3 Federal Reserve. September 16, 2026. Board of Governors of the Federal Reserve System.
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