Morgan Stanley’s Hornbach expects 25 basis-point Fed rate hike at September FOMC meeting

The Federal Reserve’s September meeting is shaping up to be the most consequential policy moment in years, and Morgan Stanley’s global head of macro strategy, Matt Hornbach, is not hedging. Hornbach expects a 25 basis-point rate hike when the Federal Open Market Committee wraps its September 15-16 session. If that happens, it would be the first rate increase since July 2023, a stretch of more than three years during which the Fed held rates steady and, at various points, markets were pricing in cuts. Why the consensus flipped August inflation data landed harder than economists expected, and it reset the table quickly. A Reuters poll conducted after that release found 85% of economists now predict the Fed will lift its benchmark target range to 3.75%-4.00%, up from the current level. Financial markets moved in the same direction. Futures contracts are pricing in an 87% to 90% probability of a quarter-point hike. Hornbach is not alone on Wall Street. Strategists at Goldman Sachs and J.P. Morgan have both updated their forecasts to include the September hike, and several also see at least one additional increase either later in 2026 or in early 2027. What is driving the Fed’s hand Eco...