By Mr. Umesh Sharma, CIO–Debt, The Wealth Company Mutual Fund
“Heading into the meeting, the Fed had held rates steady all year at 3.50%-3.75%, after three cuts in the second half of 2025. Inflation had stayed above the Fed‘s 2% target, and headline PCE prints had been rising recently — even as core, median and trimmed measures kept drifting toward target. Meanwhile the labour market stayed tight, growth remained resilient, and geopolitical risk (tensions in West Asia pushing up energy prices) had worsened since the July meeting. Bond yields had already been climbing for weeks on this backdrop — the 10-year Treasury rose roughly a quarter point since Chair Kevin Warsh’s Jackson Hole remarks, and mortgage rates crept up near 7.19%. Markets had priced in the hike itself with high confidence (93% probability) with futures implying around 75 bps of hikes over the coming cycle.
The FOMC voted unanimously (12-0) to raise the target range by 25 bps, to 3.75%-4%, framing it as support for a “timelier” return of inflation to target. The move looks driven less by any single data print and more by the combination of a strong labour market, no clear sign of underlying inflation cooling, and rising geopolitical risk. The updated projections (SEP) revised both growth and inflation estimate modestly higher, but the committee’s median dot (excluding Warsh) still pencilled in just one more hike for the cycle — well short of what markets had been pricing in. The shorter end yields rose and while longer end remained steady at elevated levels.
Markets are increasingly factoring in a Bank of Japan rate hike on 18 September, while the Reserve Bank of India is also expected to raise rates in forthcoming meetings, reflecting a broader global tightening trend with seven of the eight developed economies already in a rate-hike cycle.”