I have a very-out-of-consensus view: The Federal Reserve is unlikely to raise interest rates this week. My baseline: 1. As demonstrated in the July Federal Open Market Committee (FOMC) meeting, the center of gravity of the committee was to hold, not to hike. 2. Several FOMC members seem to share the view of Governor Barr, who said: “At the September FOMC meeting, if trends in the data give me some confidence that inflation is moderating on a path to two percent, then I think we can take a bit more time to assess our policy stance. However, if inflation appears not to be moderating sufficiently, then I think we should act decisively to raise rates.” So the question is whether the August CPI report moved the center of gravity of the FOMC from holding to hiking. It is certainly possible that it did, and I wouldn’t be shocked if the Fed does raise rates this week. But my expectation is that the Fed will hold. Five points: 1. A HIKING CYCLE IS DIFFERENT THAN A ONE-AND-DONE HIKE The Fed rarely does one-and-done hikes. So the right question is not, “Should the Fed raise rates next week?” Instead, the right questions are: “Should the Fed begin a hiking cycle next week?” and/or “Should the Fed do a one-and-done hike, which the Chairman will have to explain as a one-and-done hike?” Viewed this way, the odds of a hike next week should be a lot lower than the 87 percent current priced in by the bond market. The August CPI report might have been enough to move some FOMC members from favoring holding to favoring a one-and-done hike. But the August report would have had to have done a lot more work to move the center of gravity from holding to a *hiking cycle*. (More on the August CPI report below.) Moreover, a one-and-done hike is unlikely due to Chairman Warsh’s approach to communications, which suggests that he would not be eager to explain why the Fed did its first one-and-done hike in decades. I very well might be wrong. It is worth noting that Governor Waller, who is very influential with other committee members, might have signaled support for a one-and-done hike when he said the following on September 3rd: “If there is evidence that progress toward two percent inflation reversed in August, a small adjustment in our stance would help ensure that it resumes.” 2. NOT ROCKING THE MARKET IS A REAL CONCERN Not rocking the market by holding is an argument that many analysts take seriously. If the Fed does hike, then the desire to avoid the market reaction that would follow from holding could be the decisive factor behind the hike. * But the bond market thinks there’s a 75 percent chance of two or more hikes in 2026. So a one-and-done hike would still go against the overwhelming consensus of the market, and a one-and-done hike would still find the Fed rocking the market by going against its pricing. * If Chairman Warsh is looking for an opportunity to signal to the market that the Warsh Fed is different than its recent predecessors, then this is that opportunity. 3. WAS THE AUGUST CPI REPORT THAT TROUBLING? * Based on the August CPI, I'm expecting August monthly core PCE inflation to have accelerated a bit relative to the June and July. But even so, I expect August monthly core PCE inflation to be around 3.1 percent annualized. I am expecting the August six-month change in core PCE to be around 3.2 percent annualized. I am guessing that the majority of the FOMC would view this as evidence of ongoing disinflation (3.1 < 3.2). Or, if not, I am guessing at least that the majority would not view it as evidence of reacceleration that requires a hiking cycle to begin this week. Instead, I suspect that they would prefer to see how the next few months of data unfold. * I suspect that the August CPI print did not change the view of the center of gravity of the committee that, without higher energy prices and tariffs, underlying inflation would be closer to 2.5 percent than to 3 percent. For example, the August CPI report did not show strong evidence of inflation creeping into core services (at least relative to July). In August, core services CPI printed at 3.0 percent over the year. In July, the same measure was 3.0 percent. So if in July you thought that the economy was experiencing some disinflation, and that above-target inflation was largely driven by supply shocks, then the August PCE report we are likely to get would likely not be enough to move you off that view. 4. FINANCIAL CONDITIONS ARE TIGHTENING Over the past couple weeks, financial conditions have tightened, which Chairman Warsh and others on the committee could argue is doing the work that a potential increase in the funds rate was meant to do. 5. TO BE CLEAR, I WOULD RAISE RATES To be clear, my core argument is that not enough has happened since the July FOMC meeting that views should move in either direction. In July, if you thought that the federal funds rate was too low, then you should still think the federal funds rate is too low. And in July, if you thought the federal funds rate was at the appropriate level, then you should still think it is at the appropriate level. My own view is that the federal funds rate is too low and that the Fed should increase the funds rate this week. I would have voted for a rate hike in July (and earlier; I was opposed to the cuts in 2025). The center of gravity of the FOMC has not agreed with that throughout 2026 — including as recently as July. I suspect the data that have come in since the July meeting have not changed their view. I am expecting the Fed to hold this week, though I would not be shocked if I turn out to be wrong.