Recent inflation readings have pushed market expectations sharply higher for a September rate hike, with futures now pricing in near‑certainty that the Federal Reserve will tighten again this week. Chair Kevin Warsh’s Jackson Hole remarks underscored that policy will follow the data, and the latest CPI and PCE trends suggest the Fed has little evidence of cooling in core inflation.

How The Fed Is Framing Rate Decisions

The framework for Fed rate decisions can be boiled down to five main themes:

Labor market conditions

Corporate profits and capital spending have been robust. The better-than-expected most recent monthly jobs report removed concerns about the labor market. Together, these point to a resilient U.S. economy despite the energy price shock from the Iran conflict. Betting odds of a U.S. recession in 2026 bolster this view, and they remain very low at 7% despite higher odds of a Fed rate hike. So the Fed’s primary decision point at its meeting on Wednesday is inflation trends.

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