Institutions: The Fed's current rate hike may be a one-off move, and this round of rate hikes will only happen once

Fxstreet, September 16 - French bank Natixis economists Christopher Hodge and Selin Aker released a preview report, anticipating that the Federal Reserve will implement its first rate hike since Federal Reserve Chairman Kevin Warsh took office at this FOMC meeting. If inflationary pressures drop back in Q4 2026, this hike could be the only rate hike in the current cycle. Higher-than-expected core CPI underpins the rate hike, and the dot plot may slightly raise the rate outlook, but there is considerable division among committee members. Warsh is unlikely to offer clear guidance for future policy at the press conference.

Natixis's research team judges that the Federal Reserve is highly likely to carry out the first rate hike since Kevin Warsh assumed chairmanship. At the same time, the institution puts forward a unique perspective: if inflationary pressures moderate in the last quarter of 2026, then this could be the sole rate hike of the current cycle. Economists Christopher Hodge and Selin Aker analyzed in the FOMC preview that Chairman Warsh will use this small rate hike to further bring down inflation.

Core CPI Data Solidifies Rate Hike Expectations, Underlying Division Among Voting Members

Christopher Hodge and Selin Aker stated: “We expect the Federal Reserve to raise the policy rate ceiling to 4.0%, marking the first rate hike in three years and the first since Warsh took the position of Chairman. We believe there will be almost no dissenting votes at this meeting, but the regional Fed presidents who already advocated for a hike in July—Logan, Harker, and Kashkari—may cast dissenting votes seeking a 50-basis-point hike at once.”

The two economists said that the stronger-than-expected core CPI data has essentially cemented market expectations for this rate hike. They wrote: “Currently, policymakers' tolerance for these short-lived, one-off disturbances has clearly declined. Although some of the drivers of inflation are beyond the Fed’s control, sustained inflation above the target is a problem that the Fed must address. Policy officials continue to signal that the current situation can no longer be tolerated. At the August Jackson Hole meeting, Chairman Warsh expressed dissatisfaction with the pace of disinflation; the latest CPI data provides sufficient justification for a hawkish stance and the subsequent rate hike.”

The report also mentions that, while markets are still grappling with Warsh’s policy reaction logic, he has clearly stated that bringing inflation down is the Fed’s responsibility and that the policy rate tool will be used if necessary.

Dot Plot Likely to Slightly Raise Rate Expectations, Dispersed Committee Views Weaken Guidance

Regarding the Summary of Economic Projections, i.e., the dot plot, Hodge and Aker anticipate there will be no major adjustments. They say: “The only change we expect is that the terminal policy rate forecast for the end of 2026 will be raised to 4.1%. This suggests the dot plot median implies the possibility of another rate hike within the year. However, the signal from the dot plot median will be diluted by the considerable differences among participants, which also foreshadows a variety of possible paths for policy rates in the coming years.”

Regarding Warsh’s press conference after the meeting, the two economists predict that the Fed chair still won’t provide explicit guidance for future policy. They write: “We believe Warsh will characterize this rate hike as a move intended to ensure inflation returns to target within a reasonable time frame. He will at the same time emphasize that this decision is an independent action and does not pre-commit to future policy, keeping maximal flexibility for himself and the committee to deal with various unforeseen shocks.”

This Rate Hike Could Be One-Off, Inflation Trend is the Key Determinant

Regarding whether the Fed will continue raising rates, Hodge and Aker say the market should keep a close eye on inflation data in the coming months.

They write: “We expect subsequent inflation readings to improve gradually, so this hike is likely a one-off move—possibly the only hike of this cycle. However, this is unusual; the Fed typically hikes several times in succession once it starts, as it usually takes multiple moves to sufficiently restrain price pressures. But this is not a typical policy cycle. The broad trend in inflation remains downward; year-on-year readings are still below the prior month’s, but the pace of decline is not meeting the Fed’s expectations. Therefore, the central bank hopes that even this small rate hike can help drive inflation lower.”

Conclusion

. Natixis believes that the pace of disinflation is the key to determining future policy direction. Even if the dot plot hints at another hike this year, diverging member outlooks combined with Warsh's preference for policy flexibility mean the Fed is unlikely to precommit to a specific path. If inflation continues to cool through Q4, this hike could mark the end of the cycle. Such an atypical single-hike scenario could have unique impacts on the dollar, US Treasuries, gold, and a range of other assets.