1. Current policy setting and September event definition

   • As of late July 2026, the FOMC’s target range for the federal funds rate is 3.50%–3.75%, so the relevant upper bound for this market is 3.75% [1][3].

   • The September 2026 FOMC meeting is scheduled for September 15–16, 2026, and is a meeting associated with a Summary of Economic Projections, which means it is a natural focal point for any major strategy shift if one is coming [1].

   • The question asks for the change in the upper bound relative to the pre-meeting level, bucketed in 25 bp increments, so the key discrete outcomes are: -50, -25, 0, +25, +50 bps (with any nonstandard change rounded up to the nearest 25 bps).

2. Macro backdrop: inflation

   • Headline CPI inflation for June 2026 is 3.5% year-on-year, down from 4.2% in May, and the monthly CPI actually declined by 0.4% in June [2]. This is a meaningful improvement from earlier in the year and indicates that, at least in the CPI data, inflation momentum has cooled recently.

   • The Fed’s preferred gauge, PCE inflation, is more elevated: headline PCE was running at about 4.1% year-on-year in May 2026, with core PCE at 3.4% [10]. These are clearly above the 2% target, and recent commentary notes this is the highest core reading since 2023, underscoring ongoing inflation pressure.

   • The June 2026 FOMC minutes report that inflation remains elevated, with staff estimates putting April PCE at 3.8% and May PCE at 4.1%, and core PCE at 3.3–3.4% [4]. The Committee sees inflation risks tilted to the upside in the near term due to tariffs, energy prices, and AI-related demand, even though they also expect inflation to gradually step down as these factors wane [4].

   • The June 2026 Summary of Economic Projections (SEP) revised the projection for Q4 2026 core inflation upward (e.g., an accessible FRED summary notes an increase of the core inflation projection from 2.7% to 3.3%) [9]. This indicates that, relative to earlier in the year, the Fed has become more concerned about persistent inflation, which tends to push against near-term cuts and, if anything, nudges toward a tightening bias.

3. Macro backdrop: labor market and growth

   • The U.S. unemployment rate in June 2026 is 4.2%, down slightly from 4.3% in May [5][6]. Nonfarm payrolls have been growing, although more slowly than earlier in the cycle, and the June BLS report describes changes in payrolls and unemployment as relatively small [5][7].

   • Wage measures like average hourly earnings and the Employment Cost Index are running around the mid-3% range year-over-year according to the June FOMC minutes, consistent with a labor market that is not overheated but still relatively firm [4].

   • The minutes characterize the labor market as broadly stable near its longer-run level, with solid payroll gains but some evidence of reduced dynamism (e.g., lower job-finding rates, some softening in job openings) [4]. Overall, the labor market does not present an urgent reason to either hike or cut in September—it neither demands immediate tightening (through wage-push inflation) nor signals a sharp downturn requiring accommodation.

4. FOMC’s June 2026 discussion and forward guidance

   • The June 2026 minutes show unanimous support for keeping the target range unchanged at 3.50%–3.75% at that meeting [4].

   • Importantly, they describe a contingent policy reaction function:

     • If inflation falls back convincingly toward 2%, most participants indicated that maintaining or eventually lowering the target range would be appropriate.

     • If inflation remains elevated due to tariffs, energy, or AI-related demand, almost all participants said some additional policy firming would likely be warranted [4].

   • On the end-of-year 2026 rate level, the minutes note a split:

     • Under what participants judged as the most likely economic scenario, many thought the appropriate rate at year-end would be within or slightly below the current range.

     • Many others believed it should be above the current range [4].

   • This split implies:

     • There is no strong consensus for either cutting or hiking by year-end.

     • The balance of views is roughly even between “stay near/under current level” and “go somewhat higher.” Thus, the hurdle for a near-term hike in September is not extremely high, but it also is not obviously the committee’s base case.

   • The June statement was deliberately shortened to remove any easing bias, emphasizing that the Committee is data-dependent and that future moves could be in either direction as needed to achieve the dual mandate [4]. That rhetorical shift is hawkish relative to earlier expectations of cuts but does not in itself commit to immediate hikes.

5. Dot plot and external forecasts

   • The June 2026 dot plot (SEP) features a median federal funds rate projection around 3.8% for year-end 2026—slightly above the current 3.75% upper bound [9]. That suggests, on paper, at least some probability of one 25 bp hike by the end of 2026.

   • Commentary from analysts and institutions:

     • A Goldman Sachs note in June 2026 argues that the Fed is unlikely to cut rates in 2026 and instead pushes its forecasted cuts into 2027, implying a bias toward on-hold or higher rates this year [12].

     • J.P. Morgan’s research suggests the Fed could remain on hold through 2026 and only raise in 2027 in their central scenario [11].

   • Overall, professional forecasters appear to see limited scope for cuts in 2026 and a modest chance of higher rates over the medium term. However, they do not generally argue for urgent hikes at the very next meeting, given a mixed inflation picture and a softening but stable labor market.

6. Balancing scenarios for the September 2026 decision

   • Key scenarios for September:

     1. No change (0 bps): The Fed keeps the target range at 3.50%–3.75% (upper bound 3.75%). This is consistent with:

        • Recent deceleration in headline CPI from 4.2% to 3.5% [2].

        • Core PCE and headline PCE still above target but not clearly accelerating further [7][10].

        • A labor market that is close to estimates of maximum employment, but not under clear stress [5][7].

        • A desire to collect more data (CPI, PCE, labor market reports) into the fall before deciding whether the inflation upshift is persistent.

        • The June minutes’ framing that a wait-and-see approach is acceptable unless inflation proves more persistent than expected.

     2. 25 bps hike (+25 bps): The Fed raises the upper bound from 3.75% to 4.00%. This would likely require:

        • One or two additional inflation reports (CPI/PCE) between now and September showing either renewed acceleration or clearly stubborn core inflation not easing as anticipated.

        • Evidence that inflation expectations are drifting upward or that wage growth remains too strong.

        • A determination by the median FOMC participant that the upper tail inflation risk is material enough to warrant pre-emptive tightening.
          The June minutes do emphasize upside risks and note that “almost all” participants see some policy firming as appropriate if inflation remains elevated [4]. However, since June data has already shown a meaningful dip in CPI, the bar for proving that inflation is “remaining elevated” in a way that justifies a near-term hike is not trivial.

     3. Cuts (-25 bps or more): These scenarios would require either a significant downside surprise in growth/labor (sharp rise in unemployment, clear deterioration in payrolls, or financial stress) or a much faster-than-expected drop in core inflation. Current data do not point to such conditions: unemployment is low-4s, inflation is still well above the 2% target, and there is no suggestion from the minutes or recent commentary that cuts are under active near-term consideration [4][5][7][10][12]. Thus, the probability of a cut in September appears quite low.

7. Why I slightly favor “no change” over a hike

   • On the one hand, the Fed’s dot plot and the upward revision to core inflation projections suggest that additional tightening by the end of 2026 is a live option, and the minutes explicitly outline a conditional path to higher rates if inflation does not moderate [4][9]. That keeps the probability of a 25 bp hike by or at the September SEP meeting non-trivial.

   • On the other hand:

     • Recent CPI data show a notable improvement to 3.5% YoY, with a negative monthly print [2].

     • PCE inflation is elevated but not spiraling; core PCE in the mid-3s can justify patience, especially if sequential monthly core PCE readings start to slow in the summer [7][10].

     • The labor market is not flashing red: unemployment at 4.2% with modest payroll gains can support a cautious approach rather than a rush to hike [5][7].

     • The Committee is internally divided on whether year-end rates should be within/below or above the current range [4]. That division, combined with recent better inflation data, makes it harder to assemble a majority for an immediate hike in September absent a new negative surprise.

   • Given those factors, I view the September decision as a relatively close call between “no change” and “+25 bps,” but with the balance of evidence tilting modestly toward a hold. Rate cuts in September appear quite unlikely barring a large negative shock.

8. Quantifying the forecast

   • Based on the above evidence and qualitative assessment:

     • No change (0 bps): ~52%

     • +25 bps hike: ~38%

     • Other outcomes (cuts or ±50 bps) collectively: ~10%

   • The question asks for a single most likely outcome and its probability. Thus, my prediction is that the FOMC will keep the upper bound at 3.75% in September 2026, corresponding to a 0 bps change, with an estimated probability of about 52%.

Overall, the Fed is facing sticky but not worsening inflation, a stable labor market, and internal disagreement on whether more tightening is needed. In that context, a September hold is slightly more likely than a hike, and significantly more likely than a cut.