Written by: Jia Li, Wall Street Insights
As the Federal Reserve’s September meeting moves into the countdown, the market is holding its breath, waiting for the policy direction.
In a report released on September 14, Standard Chartered’s bank clearly judged that the Fed will keep rates unchanged at its September 15–16 FOMC meeting (the rate decision will be announced in the early hours of Thursday Beijing time). In the bank’s view, the current rate hikes are still an "incorrect policy choice". A more reasonable approach would be to wait for the tariff impact and for recent data revisions to fade, and then assess whether inflation has formed a trend.
The issue is that markets have already positioned quite aggressively. Federal funds futures are currently pricing in an 88% probability of a 25-basis-point rate hike in September. If the Fed holds steady, the rates market could see a significant repricing, and the U.S. dollar may temporarily weaken. Conversely, if the Fed’s rate hike materializes, the market may further reinforce hawkish expectations. Standard Chartered believes that Waller’s credibility could play a stabilizing role in this scenario and support the dollar and longer-end U.S. Treasuries.
Therefore, the trading focus of the September meeting is not only on the rate decision itself, but also on how the Fed will communicate the subsequent policy path to the market—especially whether Wosch can re-anchor market expectations.
Inflation pressure may be overestimated; the tariff shock is fading
The report argues there is a possibility that current core inflation is being overestimated. Tariffs have indeed pushed up core PCE, but the magnitude and duration of the impact remain highly uncertain. Revisions to the GDP data could also change the market’s assessment of the outlook for the economy and inflation. Until the data stabilizes, the Fed has no need to rush into a rate hike.
The bank’s tracked measure of super-core CPI has recently fallen clearly, returning to normal ranges typical of the 2010s. The report believes current CPI pressure comes more from commodity prices; while tariffs are an important driver, this does not mean that sustained inflation pressure has already formed within the economy.
Chained-core CPI and core PCE have been highly synchronized over the long term, but have recently shown a clear divergence. The report notes that chained CPI more accurately reflects consumers’ actual spending, and its recent trajectory is something policymakers should pay close attention to.
In addition, multiple analyses within the Fed suggest that tariffs may contribute about 0.7 percentage points to PCE inflation. As tariff revenues peak in the fourth quarter of 2025, the inflationary impact may gradually ease over the following months. In other words, the current period may be a window in which the tariff inflation shock is starting to fade.
From a risk-management perspective, waiting for data confirmation would not rule out the option of a rate hike. If subsequent data shows inflation is rising again, the Fed could still hike rates by 50 basis points in one move; conversely, if it hikes too early and is then forced to reverse course, it could damage the credibility of policy.
Hike pricing rises to 88%, and Wosch faces the risk of policy feedback
Although Standard Chartered believes September should not see a rate hike, the market has clearly shifted to a more hawkish stance. The probability of a 25-basis-point hike in September priced by federal funds futures is as high as 88%, and it also expects cumulative hikes of roughly 74 basis points by March next year. Much of this warming in expectations is driven by the speech at Jackson Hole by Wosch.
But the report points out that the market may only be capturing the hawkish portion of Wosch’s remarks. On one hand, Wosch emphasizes the importance of inflation returning to the target; on the other hand, he also notes that policymakers must judge whether underlying inflation is rising, falling, or stagnating, rather than relying on a single data point.
Wosch also warns that if the market relies on the Fed’s guidance, and the Fed in turn relies on market prices, policymakers may end up overlooking new economic developments, increasing the risk of policy mistakes.
In Standard Chartered’s view, this risk is being amplified further. The higher the expectations for a rate hike, the stronger the market’s pricing will be as an effective constraint in the opposite direction on policy. The Fed is also more likely to be influenced by prevailing expectations, creating a feedback loop of “market expectations driving policy, and policy reinforcing market expectations.”
Therefore, if September ultimately results in a hold, what is truly worth watching will be how Wosch handles the already elevated expectations for rate hikes: he must explain why there is no need to hike at this time, and also show that the Fed will not be led around by market pricing.
The vote-count logic does not support a September rate hike
The voting structure is also an important basis for Standard Chartered’s view. In the July FOMC, three members supported a rate hike. If September is to truly deliver a hike, at least four members who were originally inclined to hold steady would need to change their stance to reach the 7-vote threshold.
Standard Chartered believes Wosch’s most likely strategy is to avoid being in the minority, but he would not proactively push for a rate hike. If another four members turn toward support, he may join the rate-hike camp; if only three turn, Wosch may vote to support a rate hike to avoid a 6–6 tie; if only two turn, he would still have room to support holding steady.
The key is whether data since the July meeting is sufficient to prompt at least three “hold steady” policymakers to change their stance. Standard Chartered believes the current data is not enough to meet this condition.
The real test is at Wosch’s press conference
The report expects there will be no major change to the FOMC statement. On the SEP, the dot plot may not shift noticeably more hawkish, but compared with June, the room for rate cuts may further narrow, and the level of the weighted-average policy rate could move higher.
If the Fed ultimately holds rates steady, Wosch will face a tougher test at the press conference: he must both explain why there is no need to hike now and explain how the Fed will interpret the high rate-hike expectations the market has already formed.
The market is especially likely to question whether the October meeting still leaves room for a rate hike. Wosch will most likely stress that each meeting will be decided based on the data, but if there are no clearer policy triggers, doubts about his stance may persist.
Therefore, the impact of the September FOMC depends not only on the rate decision itself, but also on whether Wosch can effectively guide subsequent expectations. For the U.S. dollar and long-end U.S. Treasuries, the key variable after the meeting will be how the market reprices the future rate path.