The Federal Reserve (FED) will have its quarterly meeting on September 16, 2026. The Federal Open Market Committee (FOMC) will determine its next move. However, that next move has been a topic of uncertainty for the past few weeks. Will they raise the rates, will they keep the rates at the current level, or will they cut the rates? 

The FOMC is unusually divided. At the July 29 meeting, the committee voted 9-3 to hold rates at 3.50%-3.75%. The dissenting votes came from the presidents of the regional Fed Banks in Dallas, Minneapolis, and Cleveland. All three pushed for a rate hike, not a cut. This is a significant change from the Fed’s 2025 focus on when would be the right time to lower rates. It might be a close call, but predictions are indicating that the “powers that be” will raise the federal fund rate for the first time in more than three years. 

This “about face” move from the Fed would be focused on inflation, which is still above the 2% target that the Fed desires. In a nutshell, the message behind a rate increase would blame inflation forcing the Fed’s hand.  The new statement will likely continue to call growth “solid” and describe the labor market as little changed after the rebound in August payrolls. Its inflation warning will be amplified. The pledge to restore price stability will stay.

According to the U.S. Bureau of Labor and Statistics, the U.S. economy is projected to add 5.9 million jobs from 2025 - 2035. A Fed rate hike can lead to higher borrowing costs, which may slow down business investments and consumer spending. Lower consumer spending can lead to a decreased demand for goods and services. This could potentially result in slower job growth and even job losses in certain industries. 

The investment in Artificial Intelligence (AI) has been driving the economy. The United States appears to be “all in” when it comes to investing in AI. According to the White House’s AI Action Plan, “Whoever has the largest AI ecosystem will set the global standards and reap broad economic and security benefits…our Nation will win, ushering in a new Golden Age of innovation, human flourishing, and technological achievement for the American people.” This all sounds fine and wonderful, but this could be a driving force which causes the Fed to increase rates on September 16, 2026. 

According to Ed Yardeni, President of Yardeni Research, the AI buildout “has created an insatiable demand for capital.” Jobs in AI-related fields are growing, as are those in the construction and manufacturing sectors, as new data centers get built. Yardeni projects that in the long run, AI-related fields should deliver disinflationary productivity growth, keeping the economy thriving. However, in the present, the AI boom seems to be fueling the Fed’s hard line to control inflation by slowing down economic growth through interest rate hikes. A Fed rate hike can increase the cost of capital, creating roadblocks by making it more expensive for companies to finance their investments in AI. This could slow down the rapid growth in AI -related spending, as higher interest rates typically diminish investment in capital intensive projects. 

How will a Fed rate hold affect inflation? A Fed rate hold keeps borrowing costs steady. This can maintain current inflation levels.  Should the Fed hold the rate, this could be indicative that the Fed is focusing on price stability above employment support. 

A Fed rate hold can also impact the Labor market. A Fed rate hold can lead to stabilizing borrowing costs. This in turn can boost business investment and encourage hiring, leading to job growth. However, an unchanged rate for an extended period of time could indicate economic stagnation. This would negatively affect the Labor market. 

A rate hold by the Fed can both support and temper the AI capex boom. Keeping interest rates steady, helps maintain elevated financing costs for data center construction and equipment. This can encourage companies to lock in their investments at current rates before risking future rate increases. At the same time, holding the rate can slow down investment in AI. Companies may be cautious about taking on new projects if borrowing costs are high. This could lead to a decrease in the pace of AI growth. 

It is unlikely that the Fed will cut the rate on September 16, 2026. A rate cut would likely boost consumer spending potentially leading to a rise in inflation, which the Fed is adamantly opposed to.  A cut could also reduce borrowing costs, which would encourage business spending and investments. This could result in an increase in both the labor market, creating more jobs, and in AI investment spending. 

There might be strong indicators one way or the other to predict the course the Fed will take on September 16th. It would be nice to have a crystal ball. In the end, only time will tell what the Fed will decide to do, and whether its decision will have a positive or negative impact on the economy. 

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