Fed Hikes to 3.75%-4.00% on a 12-0 Vote — the 2027 Dot Jumped 50bp and Shows No Cuts Next Year

Fundamentals · 2026-09-16

The FOMC raised the target range 25bp to 3.75%-4.00% on a 12-0 vote — unanimous, after five consecutive holds and a July meeting where three members dissented *in favor* of hiking. The hawkish payload is the dot plot: the 2026 median rose to 4.1% from June's 3.8%, the 2027 median to 4.1% from 3.6% (+50bp), and 2028 to 3.9% from 3.4%. The 2026 and 2027 medians are identical, which means one more hike this year and then no cuts at all through 2027. 16 of 18 participants see at least one further hike; four see two. Unemployment was revised down to 4.1% from 4.3%, GDP up to 2.3%, and inflation up — PCE 3.7%, core 3.4%, with the return to 2% pushed later. The statement was cut to five sentences and ends: "The Committee will deliver price stability." IORB 3.90%, primary credit 4.00%. Press conference at 14:30.

What It Changes

• The hike was priced; the 2027 dot was not. At 4.1% the 2027 median sits exactly where the 2026 median sits, so the committee's central case is one more increase this year followed by a full calendar year with no easing. Markets came in arguing about the pace of cuts. The answer is that there are none until 2028.
• A 12-0 vote is more hawkish than the decision itself. Some analysts had flagged a 10-2 split with governors dissenting toward a hold. Instead the entire committee signed a rate rise — the mirror image of July, when three members dissented because the Fed *would not* hike.
• The SEP describes an economy running hotter than June thought, in both directions. Growth up, unemployment down two tenths, inflation up a tenth on both measures, and the return to 2% pushed out a year. That combination does not produce cuts; it produces the path they just published.
• The statement itself is the structural news. It is five sentences. No forward guidance, no reaction function, no "the Committee will continue to monitor." Warsh retired routine guidance at Jackson Hole and this is what replaces it: a declaration, ending with "The Committee will deliver price stability."
• Operationally the balance sheet has quietly turned. The directive instructs the Desk to buy Treasury bills when appropriate to maintain ample reserves and to reinvest all agency principal into bills. Tightening on the policy rate, no longer tightening on the balance sheet.

Impact

• USD — Bullish — a unanimous hike plus a 50bp upward revision to the 2027 median is the hawkish combination, and the dollar has been trading the rate path all week.
• This morning's Open had DXY at 99.66, pressing the 99.80 confluence it has been approaching since Friday's CPI, with the 10-year closing Tuesday at 4.996% after touching 5.04%. A path that removes 2027 cuts is the fundamental case for that level rather than an obstacle to it.
• The pairs with their own reason are 6J and 6E. The Bank of Japan decides Friday with a 25bp hike to 1.25% priced near 97% — the first time this cycle both banks move in the same week — and the ECB has already hiked. A Fed that is now signaling no cuts through 2027 widens rather than narrows the policy gap.
• US Indices (ES / NQ / YM / RTY) — Bearish — the market came in on a relief bounce after five declines in six sessions, and the dot plot removed the reason for it.
• Futures were +0.2% to +0.4% across Dow, S&P and Nasdaq-100 into the decision. The Open named the risk precisely: the toughest outcome was a hike paired with a high dot and yields still climbing. What arrived was closer to that than to the friendly version.
• NQ and RTY carry it most. Long-duration equity is the most sensitive to a terminal path pushed a year further out, and small caps are the most sensitive to the 10-year that this SEP just underwrote.
• Gold (GC) — Bearish — gold has been trading as a rates instrument, falling alongside a strengthening dollar even with a live Middle East escalation, and this pushes real rates the wrong way for it.
• The Open flagged gold's overnight reversal to $4,388 off Tuesday's six-week low as positioning rather than a change of mechanism, and said the test was whether it survived 14:30. This is the input that decides it.

Inside The Number

The Committee raised the target range for the federal funds rate by a quarter point to 3.75%-4.00%, the first increase after five consecutive holds. The vote was 12-0.

Start with the vote, because it is the most surprising line in the release. At the July meeting the Committee held, and three members dissented in favor of hiking. Today not a single member dissented in either direction. The three July dissenters did not merely win the argument; they won it unanimously, which means several members who voted to hold seven weeks ago have moved all the way across. Coming into the meeting some analysts had flagged the possibility of a 10-2 split with two governors dissenting toward a hold. There was no split at all.

The statement is the shortest in modern memory, and that is deliberate. Five sentences of substance. It says activity is "expanding at a solid pace," that "productivity growth is strong, and capital investment is robust," that "job gains have kept pace with the workforce," and that "inflation remains elevated." Then it closes with two sentences no recent FOMC statement would have carried: "Today's policy action will support a timelier return to the Committee's 2 percent goal. The Committee will deliver price stability."

That is a declaration, not a forecast. Chair Warsh retired routine forward guidance at Jackson Hole on 28 August and refused to supply a mechanical reaction function, saying he wanted confidence that inflation is moving to target "clearly and at sufficient speed." The statement now reflects that: no conditionality, no data-dependence language, no description of what would change the Committee's mind.

Now the dot plot, which is where the actual news is. The median projection for the federal funds rate at end-2026 rose to 4.1% from 3.8% in June. For end-2027 it rose to 4.1% from 3.6% — a 50bp upward revision. For end-2028, to 3.9% from 3.4%, another 50bp. The 2029 median is 3.6% and the longer-run median edged up to 3.2% from 3.1%.

Read the 2026 and 2027 medians together, because that is the whole message. The current target range has a midpoint of 3.875%. A 2026 median of 4.1% implies one further 25bp increase before year-end. A 2027 median of *the same* 4.1% implies that rate then sits unchanged for the entirety of next year. The committee's central case contains no rate cut until 2028.

The distribution is more hawkish than the median. For 2026, 16 of 18 participants project a rate above the current midpoint — twelve at 4.125% and four at 4.375%, which is two more hikes. Only two see no further move, and nobody projects a cut this year.

For 2027 the distribution does something unusual: eight participants sit at 4.375%, double the four who see that level this year. Fourteen of eighteen are at 4.125% or higher. Three project 3.625% and one 3.125%. So the hawkish tail does not fade into next year — it *thickens*. That is the opposite of the usual SEP shape, where dispersion widens downward as the horizon lengthens.

The economic projections explain why. Every forecast moved in the direction that justifies a higher path:

Growth was revised up — 2026 GDP to 2.3% from 2.2%, 2027 to 2.4% from 2.3%. Unemployment was revised down hard — 2026 and 2027 both to 4.1% from 4.3%, and 2028 to 4.1% from 4.2%. That is a two-tenths improvement across the forecast horizon, and the histogram shows ten of eighteen participants now in the 4.0-4.1% bucket for 2026 against none in June.

And inflation was revised up: 2026 PCE to 3.7% from 3.6%, core PCE to 3.4% from 3.3%. More telling, the 2028 figures also rose — PCE to 2.1% from 2.0% and core to 2.2% from 2.1% — which means the Committee now expects to still be above target in 2028, a year later than it thought in June.

Put those together and the SEP describes an economy with more growth, less labor slack and more inflation than the Fed assumed three months ago. Against the 2025 actuals the drift is stark: PCE inflation ran 2.8% in 2025 and is projected at 3.7% for 2026, while unemployment has come *down* from 4.5% to a projected 4.1%.

One structural note that will get missed. The implementation note directs the Desk to "when appropriate, increase the System Open Market Account holdings of securities through purchases of Treasury bills" to maintain ample reserves, and to reinvest all agency principal into bills. Alongside it, the Board raised interest on reserve balances to 3.90% and the primary credit rate to 4.00%, with standing repo at 4.0% and reverse repo at 3.75% capped at $160 billion per counterparty. The Fed is tightening through the policy rate while standing ready to *add* to the balance sheet. Those are not contradictory — reserve management is not policy stance — but anyone reading balance-sheet growth as easing will misread it.

What this brief does not contain. Chair Warsh's press conference begins at 14:30, half an hour after this release. Nothing here reflects it. Given that the statement carries no guidance and no reaction function, the press conference is doing more work this cycle than it used to, and the vote count and the 2027 dot are the two things worth listening for him to explain.

The Internals

The decision and the operational settings:

Measure · New · Previous · Effective

Target range, federal funds rate · 3.75%-4.00% · 3.50%-3.75% · 17 September 2026

Vote · 12-0, unanimous · 9-3 to hold in July, 3 dissents to hike · n/a

Interest on reserve balances · 3.90% · 3.65% · 17 September 2026

Primary credit rate · 4.00% · 3.75% · 17 September 2026

Standing repo facility rate · 4.0% · 3.75% · 17 September 2026

Overnight reverse repo rate · 3.75% · 3.50% · 17 September 2026

Reverse repo per-counterparty cap · $160 billion per day · $160 billion per day · 17 September 2026

Median projections, September against June:

Variable · 2026 · 2027 · 2028 · 2029 · Longer run

Federal funds rate, September · 4.1% · 4.1% · 3.9% · 3.6% · 3.2%

Federal funds rate, June · 3.8% · 3.6% · 3.4% · n/a · 3.1%

Change · +30bp · +50bp · +50bp · n/a · +10bp

Real GDP growth, September · 2.3% · 2.4% · 2.2% · 2.1% · 2.0%

Real GDP growth, June · 2.2% · 2.3% · 2.2% · n/a · 2.0%

Unemployment rate, September · 4.1% · 4.1% · 4.1% · 4.1% · 4.2%

Unemployment rate, June · 4.3% · 4.3% · 4.2% · n/a · 4.2%

PCE inflation, September · 3.7% · 2.3% · 2.1% · 2.0% · 2.0%

PCE inflation, June · 3.6% · 2.3% · 2.0% · n/a · 2.0%

Core PCE inflation, September · 3.4% · 2.5% · 2.2% · 2.0% · not collected

Core PCE inflation, June · 3.3% · 2.5% · 2.1% · n/a · not collected

Where each projection moved, and what it argues for:

Revision · Direction · Size · What it supports

2027 federal funds median · Up · +50bp · The single largest change in the SEP

2028 federal funds median · Up · +50bp · Higher for longer, not just higher

2026 federal funds median · Up · +30bp · One more hike before year-end

Unemployment 2026 and 2027 · Down · -0.2pp each · Less slack than June assumed

Core PCE 2026 · Up · +0.1pp · Inflation running hotter

Core PCE 2028 · Up · +0.1pp · Above target a year longer

PCE inflation 2028 · Up · +0.1pp · The 2% return date slipped

Real GDP 2026 and 2027 · Up · +0.1pp each · Demand stronger than assumed

Longer-run federal funds · Up · +10bp · Neutral estimate still creeping higher

The projections against what actually happened in 2025:

Variable · 2025 actual · 2026 projection · Direction

Real GDP growth · 2.0% · 2.3% · Accelerating

Unemployment rate · 4.5% · 4.1% · Falling

PCE inflation · 2.8% · 3.7% · Accelerating sharply

Core PCE inflation · 2.9% · 3.4% · Accelerating

Inside The Dot Plot

The median tells you less than the distribution, so here is every participant's projection for the end of each year.

2026, eighteen participants:

Projected midpoint · Participants · Implied from today's 3.875% midpoint

4.375% · 4 · Two more 25bp hikes

4.125% · 12 · One more 25bp hike

3.875% · 2 · No further change

Sixteen of eighteen project at least one more increase this year, and not one projects a cut. That is close to the most one-sided a 2026 dot distribution can be while still having any dispersion at all.

2027, eighteen participants:

Projected midpoint · Participants · Implied from today's 3.875% midpoint

4.375% · 8 · Two 25bp hikes above today

4.125% · 6 · One 25bp hike above today

3.625% · 3 · One 25bp cut below today

3.125% · 1 · Three 25bp cuts below today

This is the table that matters, and it is the wrong shape. Normally a dot plot fans out downward as the horizon extends, because participants expect policy to return toward neutral. Here the hawkish end gets *heavier*: eight participants see 4.375% at the end of 2027 against only four who see it at the end of 2026. Fourteen of eighteen are at or above one more hike from today. Only four project any easing at all by the end of next year, and only one projects more than a single cut.

2028 and 2029 finally bring easing, and slowly. For 2028 the seventeen submitted projections spread from 3.125% to 4.125%, with the median at 3.9% — roughly one cut from today across two full years. For 2029 the median is 3.6%, about a cut lower again.

The longer-run dot is where the committee openly disagrees, and the spread is wide: projections run from 2.875% to 3.875%, with six participants clustered at 3.000% and the median at 3.2%. That median has drifted up again from 3.1% in June. A committee that cannot agree within a full percentage point on where neutral sits is a committee that will keep arguing about how restrictive it currently is.

Read the whole thing as one sentence: the Fed thinks the economy is stronger and tighter than it did in June, thinks inflation will take a year longer to come home, and has therefore drawn a path with one more hike this year, nothing at all next year, and the first cut arriving in 2028.

Against This Morning's Open

• The Open framed the day exactly right and set a testable bar — The Open wrote that "the hike itself is not the fulcrum" and that "what actually moves markets today is the dot plot and the vote count." Both of those are precisely where the news landed.
• It named the two scenarios, and reality came in nearer the hawkish one. The Open said "the cleanest risk-friendly outcome would be a 25bp hike paired with an end-2026 dot near 3.9%... the toughest would be the same hike paired with a 4.4% dot and yields pushing still higher." The end-2026 median printed 4.1% — between the two, but above the friendly case, and the 2027 dot it did not ask about moved 50bp.
• On the vote it flagged a split that did not happen. The Open noted analysts had raised the possibility of "a 10-2 vote, with two governors dissenting toward holding," and said a split decision reads differently even at the same headline rate. It came 12-0, which is the hawkish resolution of that question.
• The Open also identified the right thing to watch afterwards — whether gold's overnight bounce to $4,388 survives the press conference, and whether DXY breaks 99.80. Both now have their input.

What This Sets Up

• The press conference at 14:30 is the same release. With the statement stripped of guidance, Chair Warsh's remarks are where the reaction function now lives. The 2027 dot and the unanimous vote are the two things worth hearing him justify.
• The next FOMC decision is the one the 2026 median is pointing at. A 4.1% median with a 3.875% current midpoint means the Committee's central case is one more hike before the year is out, so every print between now and then is a vote on whether it happens.
• Watch whether the market accepts the no-cuts-in-2027 message or fades it. Fed funds futures have repeatedly priced cuts the SEP did not contain. The gap between the 2027 dot at 4.1% and what the strip prices for end-2027 is now the cleanest measure of how much the market believes this Committee.
• The Bank of Japan decides Friday, with a 25bp hike to 1.25% priced near 97%, and this is the first week of the cycle in which both central banks move. The policy differential just got reaffirmed from the US side.
• Friday is also triple witching, with over $2 trillion of options open interest expiring in the same week as this decision, the BOE and the BOJ. Not a forecast, but a real amplifier for whatever direction this afternoon sets.

What Is This?

• What it is: The Federal Open Market Committee sets US monetary policy at eight scheduled meetings a year. At four of them — March, June, September and December — it also publishes the Summary of Economic Projections, in which each of the 18 participants submits forecasts for GDP growth, unemployment, PCE inflation, core PCE inflation and the appropriate path of the federal funds rate, for each of the next several years and over the longer run. The chart of those individual rate projections is what markets call the dot plot. Today's release carried three things at 14:00 ET: the policy statement, the implementation note detailing the administered rates, and the SEP. The Chair's press conference follows at 14:30.
• Why it matters: The federal funds rate is the anchor for the entire US yield curve and, through the dollar, for global asset prices. But the decision itself is usually priced in advance — this one was 92% to 93% priced — so the market impact comes from the *path*, and the dot plot is the only place the Committee states that path numerically. The SEP also reveals whether the Fed's view of the economy has changed, which is often more informative than the rate decision it produces.
• How to read it: Four things. The dots are not a commitment — they are 18 individual judgments about appropriate policy under each participant's own forecast, they are not voted on, and they have repeatedly been wrong; read them as the Committee's current central case, not a plan. The distribution matters more than the median, because a median can move a tenth while the underlying spread shifts dramatically, and a thickening tail at one end is a real signal. Not all participants vote — 18 submit projections, 12 vote — so the dot plot and the vote count can tell different stories. And the longer-run dot is the Committee's estimate of neutral, which means the gap between the current rate and that dot is the Fed's own rough measure of how restrictive policy is; when the longer-run dot rises, policy is implicitly less restrictive than it looked the day before.

Want the full explainer? Economic News Events, Explained breaks down this release and every other one we cover, in plain English.

_For informational purposes only. Not investment advice._