Following the release of August CPI data, major Wall Street banks have rapidly adjusted their Federal Reserve rate forecasts. While headline inflation matched expectations at a 3.4% year-on-year increase and a 0.4% monthly gain, the core CPI reading—which rose 0.3% month-on-month against a 0.2% forecast—served as the direct trigger for several institutions to overhaul their outlooks.

The most notable shift is that banks which previously anticipated the Fed holding rates steady for the remainder of this year have now flipped to pricing in a September hike. However, opinions are sharply divided on whether additional increases will follow, reflecting growing uncertainty across the Street.

TD Securities Turns Most Aggressive: From Holding All Year to Forecasting Three Consecutive Hikes

TD Securities has made the boldest pivot of all. Previously, the bank expected the Fed to keep rates unchanged for the rest of 2026, but after the August CPI print, strategists including Oscar Munoz and Gennadiy Goldberg now project the central bank will kick off a hiking cycle in September, totaling three increases. Specifically, the bank forecasts a 25-basis-point hike in September, another in October, and a third in January 2027. The strategists argue that August CPI revealed a lack of further disinflationary progress, making a September move necessary. On post-meeting guidance, TD Securities expects the Fed may avoid explicit forward guidance but anticipates a hawkish dot plot. This positions TD Securities as the most aggressive among major banks, not only incorporating a September hike into its base case but also suggesting tightening could extend into early next year.

JPMorgan Shifts to Two Hikes: September and December, With October Pause

JPMorgan has also abandoned its earlier preference for waiting, adjusting its forecast to include 25-basis-point hikes in both September and December. Chief US economist Michael Feroli noted that the case for a move next week is straightforward: core PCE inflation has exceeded 3% every month this year, with very limited progress toward the 2% target. The bank had previously leaned toward a December hike but acknowledged that hotter data could pull action forward to September. Now, the stronger-than-expected core CPI has formally cemented the September hike in its projections. However, JPMorgan does not expect consecutive hikes at every meeting. Feroli sees a reasonable justification for pausing in October—time is needed to observe the economic impact of rate increases. As such, the bank's base path is a September hike, an October pause, and a December move. Additionally, JPMorgan believes current inflationary pressures remain largely supply-driven, suggesting the tightening cycle will not extend into 2027.

MUFG: September Hike Followed by Pause, With 55-60% Odds of December Move

MUFG has completely scrapped its prior projection of unchanged rates through 2026. Strategists George Goncalves and Agron Nicaj now expect a 25-basis-point hike in September followed by a hold in October. Their rationale includes Warsh's hawkish tone at the Jackson Hole symposium, solid August employment data, and the latest CPI overshoot. Nevertheless, MUFG flags the possibility that this hike itself could be a policy misstep. The strategists point out that with market expectations already heavily skewed toward a move next week, the Fed now faces difficulty in choosing to stand pat. They emphasize that given Warsh's repeated insistence that inflation is among the options, failing to act after fresh data would create communication problems. Looking ahead, MUFG anticipates an October pause and assigns a 55-60% probability to a December hike. This trajectory is closer to a "hike, observe, then decide" approach compared with TD Securities. The bank also raised its yield forecasts across most tenors by 25-50 basis points, now seeing the 2-year Treasury at 4.25%, the 10-year at 4.625%, and the 30-year at 5% by year-end.

Citi Expects One-and-Done in September, Then Hold Until June 2027 Easing

Citi's latest outlook aligns more closely with a one-time September hike. Economists Andrew Hollenhorst and Veronica Clark project a 25-basis-point increase next week, followed by a prolonged hold until June 2027. The duo believes that higher-than-expected core inflation in August, coupled with resurgent energy prices, "very likely tips the balance" toward supporting a rate rise at the upcoming meeting. However, Citi does not conclude that the Fed is re-entering a sustained tightening cycle. Instead, the bank sees inflation gradually decelerating, prompting the Fed to begin cutting rates from June 2027, with three cumulative reductions by the end of that year. This path translates to: September hike, extended pause, then easing starting mid-2027. Previously, Citi had anticipated labor market weakness would drive the Fed to cut rates this year; after August payrolls came in stronger than expected, the bank delayed its first cut projection to 2027, and now the CPI print has prompted it to add a September hike to its forecast.

Four Banks' Forecasts Diverge Significantly

Following this round of adjustments, Wall Street's projections for the Fed's path over the coming months have coalesced into four distinct scenarios. TD Securities, previously holding through rest of 2026, now expects three hikes across September, October, and January 2027. JPMorgan, which had leaned toward a December move, now sees hikes in both September and December. MUFG, formerly anticipating unchanged rates through 2026, projects a September hike, an October pause, and a 55-60% probability of a December increase. Citi, which had earlier predicted rate cuts this year, now foresees a September hike followed by a hold until June 2027 before resuming easing.

Thus, the August CPI report has driven a shift that extends well beyond the binary question of whether the Fed will move in September. More importantly, Wall Street is reassessing the entire policy trajectory for the months ahead. The most hawkish call from TD Securities points to three consecutive hikes, JPMorgan sees two this year, MUFG suggests a possible pause after September, and Citi expects a single move followed by a wait until mid-next year. The common thread is that a September hike is increasingly becoming the base case at more and more institutions; the real divergence has shifted to whether this is a one-off corrective action or the beginning of a new tightening cycle. Market pricing has also notably strengthened, with odds for a hike next week now at approximately 85%.