Natixis predicts Fed to hold rates, possible dissent in September meeting
Natixis economists say the Federal Reserve will likely keep its policy rate at 4.0% in September, with three regional presidents expected to dissent for a 25-basis-point hike, and anticipate a brief press conference from Chair Warsh.
The Federal Reserve is expected to leave its policy rate unchanged at the upper end of the 4.0% target range when it announces its decision on Wednesday, according to Natixis economists Christopher Hodge and Selin Aker. They added that the three regional Fed presidents who dissented in July – Logan, Hammack and Kashkari – are likely to again vote for a 25-basis-point increase, potentially creating a split within the Committee.
"After hiking for the first time in three years in September, we expect the Fed to keep its policy rate on hold at an upper bound of 4.0% when it announces its policy decision on Wednesday," Hodge and Aker wrote.
The analysts noted that while a surprise hike cannot be ruled out, recent volatility in bond yields and uncertainty around technology and AI stocks have reduced the urgency for further tightening. They also suggested that avoiding an unexpected increase would help shield the Fed from criticism from the White House.
"In the intermeeting period, volatility in yields and some shakiness in tech/AI names have reduced the urgency to further tighten financial conditions," they said, adding that "avoiding a surprise hike will also help to insulate the Fed from criticism from the White House."
Regarding Chair Warsh’s upcoming press conference, the economists expect him to emphasize that the Committee is focused on inflation trends rather than any single data point, and to mention financial conditions without signaling a dovish shift. They anticipate a short briefing with limited follow-up questions, reflecting a broader move toward less detailed communications.
"We expect him to be asked about the recent CPI report and for him to reply that he and the broader Committee are more focused on trends than any one data print," the note said.
Looking ahead, Hodge and Aker forecast that slower economic growth will aid disinflation, leading the Fed to limit further tightening. They project only one additional 25-basis-point hike in December, contingent on favorable inflation data and the outlook for growth.
"Slower growth, as we are forecasting, should contribute to disinflation and prompt additional caution from the Fed to not overtighten policy," they concluded.