The big focus now is on the potential for a September rate hike after the Fed stands pat

By Victor Reklaitis and Greg Robb

Markets should be 'on alert for a hike in September, particularly with war clouds pushing up energy prices again,' one economist says

Federal Reserve Chair Kevin Warsh speaks during a news conference at the central bank's headquarters on Wednesday.

While the Federal Reserve held off on changing interest rates on Wednesday, economists say the central bank's latest decision is ramping up expectations for a rate hike at its next meeting in September.

The Fed's policy-making committee voted 9-3 to hold benchmark rates steady at a range of 3.5% to 3.75%. Wednesday's decision marked the first time that three Fed officials dissented in the same direction since September 2016.

The three dissenting votes represent "a rare degree of divergence, after a unanimous decision to hold rates in June," and that "should keep the market on alert for a hike in September, particularly with war clouds pushing up energy prices again," said Avery Shenfeld, managing director and chief economist at CIBC Capital Markets, in a note shortly after the Fed's announcement.

"While our own forecast currently has the Fed on hold over the balance of the year, that call assumes an end to disruptions in Middle East oil traffic, which is far from a sure thing at this point," Shenfeld added. "September's meeting could readily see a quarter-point rate hike if energy prices (CL00) (BRN00) continue to escalate due to a more protracted conflict in the Gulf, raising the risk of further spillovers into core inflation."

The CME Group's FedWatch tool recently was giving a 59% chance for a rate increase at the September meeting.

An economist at the Competitive Enterprise Institute, Ryan Young, also emphasized the relatively high number of dissenters on Wednesday in predicting a hike.

"While the Fed held interest rates steady at this week's meeting, it's looking more and more like a rate increase is on the way soon," said Young, a senior economist at the libertarian think tank.

-Victor Reklaitis -Greg Robb

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07-29-26 1511ET