September 18, 2026
The Federal Open Market Committee (FOMC) raised the federal funds target range by a quarter point on Wednesday, to 3.75% to 4.00%, its first increase in three years, on a unanimous vote. The statement called inflation elevated and said the move supports a timelier return to the Committee’s 2% inflation target. The language frames the rate hike as a withdrawal of accommodation rather than a turn toward restrictive policy. The updated Summary of Economic Projections lifted the expected path of rates at every horizon, the longer-run estimate included. Growth and the labor market have held up well enough that the Committee felt comfortable focusing monetary policy on price stability.
August retail sales came in stronger than anticipated with headline sales rising 1.2% versus the 0.8% estimate and the control group—which feeds directly into GDP—rising 1.4% with the estimate at 0.5%, both reversed July’s declines. Import prices rose 0.7% on the month and 7.0% from a year earlier, while the measure excluding petroleum rose 0.8%, signaling the pressure now reaches beyond energy. Taken together, the data points to an economy where firms meeting higher input costs can raise prices rather than absorb them, because demand is strong enough to carry the increase. The factory sector did not keep pace, with industrial production flat against a forecast gain, manufacturing output down 0.3%, and the Conference Board’s Leading Index fell 0.1%.
Yields rose again and the curve flattened, the move concentrated at the front end. The 2-year Treasury yield is approximately 4.74% as of this morning, up roughly 12 basis points on the week, while the 10-year is approximately 4.99%, narrowing the 2yr/10yr spread to 26 basis points. The 10-year crossed 5% on Monday for the first time since 2023, on heavier expected corporate issuance, policy uncertainty, and labor market resilience. The S&P 500 is approximately 0.4% lower at roughly 7,625, about 2% below its mid-August high, after selling off into the rate decision and recovering as yields steadied. West Texas Intermediate crude is finishing the week near $101, having touched $106 midweek as strikes disrupted Saudi exports. Gold is little changed, near $4,379 an ounce.
Following the rake hike announcement, Chair Warsh’s hawkish tone has led the market to price in potentially more hikes toward year-end, with the futures implied rate at 4.16% in December 2026. The first opportunity comes at the October 27 to 28 meeting, which decides whether September was a single adjustment or the opening of a sequence. Timing turns on whether August’s import-cost pass-through carries into the autumn data. Heavier treasury and corporate issuance, and elevated energy prices should support current levels of the long end into 2027. The Chandler team continues to manage portfolios with an emphasis on risk management, high credit quality, ample liquidity, and disciplined management of duration across client portfolios.
Next Week: S&P Global flash Manufacturing and Services PMIs, New Home Sales, and University of Michigan Sentiment (final).
Written by Karl Otto Meng, CFA, Portfolio Strategist