Will the Fed Raise Rates in September, or Hold Again?

The Federal Reserve has not changed interest rates since late last year. For five straight meetings the decision has been to wait, leaving the target range at 3.5 to 3.75 percent after three cuts in the closing months of 2025. The argument on trading desks this week is not about when the first cut arrives. It is about whether the next move is a hike.

That question moved to the front on August 19, when the Fed published the minutes of its July 28-29 meeting. The record showed a committee leaning hawkish and openly split, and it set up a data-heavy stretch that runs through Wednesday’s inflation report, a Friday speech from Fed Chair Kevin Warsh, and the Jackson Hole symposium in between. The evidence in front of investors this week points in both directions at once.

Three dissents, every one for a hike

The July minutes did not read like a committee waiting to ease. Many participants judged that “policy tightening would likely be necessary if inflation did not decline,” and some questioned whether financial conditions were tight enough to return inflation to the 2 percent goal at all. Officials described inflation as elevated and the outlook for it as highly uncertain, with risks tilted to the upside.

Three regional presidents went further and voted against the hold, each preferring a quarter-point increase then and there: Beth Hammack of Cleveland, Lorie Logan of Dallas, and Neel Kashkari of Minneapolis. Their case, per the minutes, was that acting sooner could forestall a steeper round of tightening later.

The inflation numbers give that camp something to point at. The Fed’s preferred gauge, the personal consumption expenditures price index, was last reported at 3.7 percent a year, well above target and little changed for months. Inside the second-quarter growth report, the price index for gross domestic purchases climbed to 5.7 percent from 3.6 percent in the first quarter. Home-price data released Tuesday firmed rather than cooled: the S&P/Case-Shiller national index rose 2.1 percent from a year earlier, up from 1.6 percent and above forecasts. In the Fed’s June projections, nine of the 18 officials had penciled in at least one rate increase this year.

Growth downshifted to 1.5 percent

The other side of the ledger is an economy that is slowing while the Fed holds. Real GDP grew at a 1.5 percent annual rate in the second quarter, down from 2.1 percent in the first, as government spending pulled back and investment and exports softened. Wednesday brings a second estimate of that figure, and the consensus does not expect an upgrade.

The labor market has weakened alongside it. A large July payroll miss earlier this month pushed traders to slash the odds of a September hike. Fed officials have flagged that payroll growth looks overstated and that revisions will likely show fewer jobs than first reported. A preliminary annual benchmark revision to the payroll count, due Friday, could formalize that: the last such revision lowered the tally by roughly 911,000. The consumer is cooling too. The Conference Board’s confidence index slipped to 89.4 in August, below both the prior reading and forecasts, and new-home sales fell 10.5 percent from the previous month.

For this camp, raising rates into a slowing economy risks tightening after momentum has already faded. Markets have moved their way for now. Futures pricing that briefly leaned toward a September increase in late July had swung back toward a hold by the third week of August.

What the data shows

Stocks entered the week without conviction. The S&P 500 slipped 0.28 percent Monday to 7,652.86, and the Nasdaq Composite fell 0.76 percent to 25,980, while the Dow edged up 0.26 percent to 53,417.16. The 10-year Treasury yield settled at 4.74 percent and the VIX held at 15.75, levels that signal neither panic nor complacency.

The swing input arrives Wednesday at 8:30 a.m. ET. The core PCE price index is forecast to rise 0.2 percent on the month, a step up from 0.1 percent, alongside the GDP revision, durable-goods orders, and figures on personal income and spending. A hot core reading strengthens the hawks; a soft one, paired with a downbeat growth print, hands the argument to those who want the Fed to keep waiting.

What would settle it

The calendar decides this one, and quickly. Wednesday’s core PCE and second-quarter GDP estimate are the immediate tests. Friday adds Warsh’s speech, ranked high on the docket, and the preliminary payroll benchmark revision. The Jackson Hole symposium runs Thursday through Saturday, where policymakers often sketch the path ahead. Beyond that sits the September meeting itself, the moment the debate gets its answer.

What is not in dispute is the setup. Inflation is running near double the Fed’s target, and the economy is expanding at half the pace it managed a year ago. The July minutes show a committee that has noticed both. Which signal it weighs more heavily is the question this week begins to answer.

This is a general-market summary for information only — not investment advice, and not a recommendation regarding any security.