The by 25 basis points and alluded to another hike, as the market expected and as we surmised in our prior Commentary. The more important takeaway from yesterday’s FOMC meeting is what comes next. In the prior Commentary, we pointed out three things to watch: the (SEP), the balance of risk language, and Warsh’s framing of risks and policy. Let’s review those three factors and begin to appreciate that today’s action is likely to be followed by at least another rate hike this year and not a “one and done” policy.
SEP: The median 2026 Fed Funds ending rate was 4.1%, implying another quarter-point hike before year-end. The 2026 year-end range came in relatively tight, 3.9% to 4.4%, suggesting a reasonable, though not unanimous, conviction among voters. The most important consideration was the 2027 projection, where the median remains at 4.1%, up half a point from June’s 3.6%. The Committee effectively erased the rate-cut path it had penciled in three months ago. Cuts are not forecasted to begin until 2028, a much more hawkish stance than markets had priced. The dot plots showing another hike for 2026 and stable rates in 2027 are highlighted below.
Balance of risks: The vote was unanimous, a notable change considering only three members dissented in favor of a hike six weeks ago. Despite good core inflation data, the statement’s tone was firm in its resolve to get to 2%. To wit, the statement ended with:
The Committee will deliver price stability
There was no hedging language suggesting this is a one-off hike. Its labor language was neutral rather than cautious, which gives the Committee more room to focus on inflation. Based on the statement and the SEP, the Fed’s message reads as the “series of hikes” scenario we flagged yesterday, not the “single defensive move.”
Warsh: In Warsh’s opening statement, he stressed that “today’s action will deliver a timelier return to our target.” Earlier statements from Warsh used the word “timely”, thus using “timlier” shows his resolve to fight inflation. He stressed his resolve on inflation throughout the question-and-answer session. Warsh reiterated the FOMC statement and SEP confidence in the labor market and economic growth, giving him and the Fed cover to focus on inflation. Based on his words, another rate hike is highly likely.
What To Watch Today
Earnings
- No earnings reports for today.
Economy
Musk Hints At A Merger
Elon Musk hinted that Tesla () and SpaceX () could merge, creating one of the largest companies by market cap. To wit, he told the All-In Summit in Los Angeles:
With all this collaboration, on so many levels, who can imagine what action one might take when there’s so much close collaboration in so many areas.
Beyond Musk’s leadership, the two companies already overlap. For instance, Tesla holds an equity stake in SpaceX and the two companies signed a framework agreement earlier this year governing future collaboration. SpaceX buys Tesla batteries, energy products, and Cybertrucks, while Grok, SpaceX’s xAI model, is being embedded in Tesla vehicles and reportedly powers the digital version of the Optimus robot. The two companies are also jointly building Terafab, a chipmaking plant.
Wall Street is taking the merger possibility seriously. JPMorgan argues SpaceX’s IPO gave Musk fresh capital to make acquisitions. Prediction markets, like Kalshi, are pricing in 55% odds of a merger before May 2027. As shown below, the odds have been relatively steady around 50% for the last few months.
One complication in a potential merger is Musk’s pay package. His November 2025 Tesla compensation structure ties his payout to Tesla’s market capitalization in the event of a merger or acquisition, which could be a nearly $1 trillion windfall. However, that structure creates a conflict of interest that investors should weigh against the legitimate operational logic of a merger.
Tweet of the Day
