Federal Reserve expected to raise interest rates for the first time in three years

Global financial markets brace for a pivotal shift on Wednesday, 16 September 2026, as the Federal Reserve prepares to implement its first interest rate increase in three years. Anticipation has driven extraordinary movements across asset classes, from precious metals trading desks to energy markets grappling with soaring geopolitical risks.

According to the CME Group's FedWatch tool, expectations for a tightening move have steadily solidified. The probability of the Fed raising the target range for the fed funds rate by 25 basis points stood at 92.5%, remaining consistent with the previous day's figures. Momentum had built rapidly through the week, climbing from 69.4% on Friday and reaching 86.5% by Monday.

Geopolitical Conflict and Inflationary Pressures

The impending monetary tightening arrives against the backdrop of an escalating West Asian conflict. A report released on Tuesday by the nonpartisan Congressional Budget Office (CBO) specifically blamed the ongoing US war on Iran for more than 40% of inflation during the second quarter of 2026. Entering its seventh month since joint US and Israel military actions commenced on February 28, the war has severely choked shipping traffic through critical channels such as the Strait of Hormuz and the Red Sea.

The conflict's financial footprint has expanded dramatically. The CBO estimated the war's total cost at $38 billion so far, with projections indicating an additional $3 billion burden each month. Defence Secretary Pete Hegseth previously testified before the Senate Armed Services Committee that the war cost had reached $37.5 billion through July 21. Furthermore, the CBO estimated that replacing expended munitions through August 1, 2026, requires $21.7 billion — comprising $7.3 billion for land-attack cruise missiles, $13.1 billion for missile defense interceptors, and $1.2 billion for other munitions. Replacing these munitions constitutes the largest single component of Department of Defense costs during the conflict, and the CBO projects the Pentagon will require five years to replenish depleted stockpiles.

Energy markets have reacted violently to the shipping disruptions. International benchmark Brent crude surpassed $107 a barrel, pushing oil prices above $100 a barrel for the first time since July. Prices have jumped more than 20% over the month, while Goldman Sachs warned that heightened tensions could drive global crude beyond $120 a barrel. Domestically, data from motor club AAA placed national average gas prices above $4 per gallon, reflecting a surge of more than 40% since the conflict began in February.

Financial Impact and Market Reactions

Higher interest rates represent a severe headwind for non-yielding assets. Precious metals and cryptocurrencies face mounting pressure because these investments do not pay interest. Silver futures for December delivery opened at $64.18 per ounce on Wednesday, up 0.5% from Tuesday's closing price, before climbing to $65.08 by 6:42 a.m. ET. The move lifted silver out of the $63 to $64 trading range it maintained throughout the week amid the heavy Fed anticipation, though silver prices have more than tripled over the past year and gained over 100% year-to-date.

Borrowing costs have similarly escalated across the broader economy. According to Mortgage News Daily, the typical 30-year mortgage rate stood under 6% before the war began in late February, but climbed to 7.22% by Tuesday.

Economic Indicator	Previous Level	Current Level / Projection
FedWatch 25 bps Rate Hike Probability	69.4% (Friday)	92.5% (Wednesday)
30-Year Mortgage Rate	Under 6% (Late February)	7.22% (Tuesday)
Brent Crude Oil Benchmark	Under $100	Over $107 per barrel
Total Estimated Cost of Iran War	$37.5 billion (through July 21)	$38 billion (current)

Political and Economic Fallout

The convergence of fiscal strain and monetary tightening has created a contentious political environment. US President Donald Trump has consistently pushed for lower interest rates since before Kevin Warsh took over as the new Federal Reserve chair. While Trump previously blamed major oil corporations — including Chevron, ExxonMobil, Shell, and BP, for price “gouging,” he has asserted that rate hikes are a small cost to pay to ensure Iran doesn’t have a nuclear weapon. Nevertheless, public polling indicates a growing share of Americans, including Republicans, holding the administration responsible for surging prices.

Independent forecasts underscore the persistence of these pressures. The Paris-based Organisation for Economic Co-operation and Development (OECD) had previously projected US headline inflation to reach 4.2% this year, up 1.2% from its previous project in December, though it anticipated that new inflationary pressures would dissipate by the end of 2027. Meanwhile, the CBO warned that the ongoing conflict will likely add roughly 0.5% to inflation during the first quarter of next year.

Next Steps

New interest rate determinations are scheduled to be officially announced during Wednesday's Federal Reserve meeting. Financial analysts will closely parse the central bank's policy statement for signals regarding the future trajectory of monetary tightening as the West Asia conflict and its associated energy supply bottlenecks continue to evolve.