HighIV Macro Policy & Sovereign Debt16 September 2026, Wednesday · 21:00 TRT (UTC+3)
Fed raises its target range to 3.75–4.00% in its first rate hike since July 2023
The FOMC unanimously opted for a 25 basis point hike; the September projections foresee one more hike by the end of 2026.
On 16 September the Federal Open Market Committee raised the federal funds target range from 3.50–3.75% to 3.75–4.00% by a vote of 12 to 0. This is the first hike since July 2023 and the first tightening decision since Kevin Warsh became chair in May 2026. According to the Fed's implementation note, the interest rate on reserve balances rises to 3.90% and the discount rate to 4.00%, effective from 17 September.
The economic projections released on the same day put the median policy rate at 4.1% for the end of 2026, implying one more hike before the year is out. The Committee projects 2026 PCE inflation at 3.7%, core PCE at 3.4%, unemployment at 4.1% and growth at 2.3%. Before the decision, CME FedWatch assigned a probability of about 92.7% to a hike; in other words, the decision had been priced in, and the real signal was the additional hike in the projections.
Talay assessment
Bottom line
The decision was priced in; the real message is that projections signal one more hike by year-end while 2026 PCE inflation is forecast at 3.7%. The Fed under Warsh has refused to treat energy-driven inflation as transitory and unanimously reopened the tightening cycle. The most likely course is an additional hike, but projections are not commitments and the Fed could move to hold if growth and employment data weaken.
Likely effects
- Türkiye external financingNegative1–6 months
Higher dollar rates weaken capital flows to emerging markets; Türkiye's external debt rollover costs rise, the CBRT's room to ease narrows and the risk of pressure on the lira increases.
- US growth and employmentNegative1–6 months
Tightening hardens credit conditions in an economy forecast to grow by 2.3% with 4.1% unemployment; housing and credit-dependent corporate investment are the first items affected.
- Gold and extended-maturity yieldsUncertainWeeks
The 0.8% rise in gold and 3 basis point fall in the 30-year yield after the decision suggest markets read tightening as credibility against inflation but a risk to growth.
Possibilities, ranked
- 1One more hike by year-end55%
Inflation stays high and the Fed, in line with projections, ends the year with a policy rate consistent with the 4.1% median; a data-dependent hold follows.
Watch: PCE inflation running around the 3.7% projection and the probability of the next hike rising on FedWatch
- 2Hold at the current range30%
Growth and employment data weaken or energy prices ease; the Fed keeps the range at 3.75–4.00% and does not deliver the projected extra hike.
Watch: Unemployment rising above the 4.1% projection and Fed officials emphasising patience
- 3More than one further hike15%
The energy shock deepens and core inflation overshoots the 3.4% projection; the Fed delivers more than one hike by year-end.
Watch: Core PCE rising above projection and FOMC members arguing for more aggressive tightening
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
Historical context
US 30-year yield, last 6 months
- 115/09 · US 10-year yield hits 5.04%, its highest level since July 2007
- 216/09 · Fed raises its target range to 3.75–4.00% in its first rate hike since July 2023
- 321/09 · The Fed's Goolsbee: if inflation is coming from demand, the rate response will be sharper and front-loaded
- 423/09 · US Treasury sells $70 billion of 5-year notes at 5.033%; after hot PMIs the 10-year yield hits 5.10%, its highest since 2007
- 524/09 · US Treasury sells 44 billion dollars of 7-year notes at 5.085%: highest yield since April 1993 as indirect demand falls to 57.2%
- 625/09 · Michigan consumer sentiment at a 4-month low of 48.1, 1-year inflation expectations jump to 4.6%; US 30-year yield rises to 5.50%
- 728/09 · US ten-year Treasury yield climbs to a 19-year high
- 829/09 · US long-dated yield holds above 5.5% despite Treasury buybacks
- 901/10 · US Treasuries pull back from their peak as two-year yield drops 10 basis points
- 1002/10 · US economy adds only 29,000 jobs in September
- 1105/10 · Nasdaq hits record as Treasury yields touch 24-year high
- 1206/10 · Fed's Schmid and Daly keep the door open to hikes despite high yields
- 1308/10 · Weak demand at US 30-year auction breaks with strong 10-year sale
- 1420/10 · Thirty-year Treasury yield slips below the 20-year point
- 1522/10 · US 10-year yield slips below 5% as tech sell-off deepens
- 1627/10 · Domestic buyers displaced foreigners at the US two-year auction
- 1703/11 · Treasury yields climb on election day ahead of the refunding statement