What Happens if the Fed Raises Rates This Week?

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What Happens if the Fed Raises Rates This Week?

For the first time in 3 years, the Federal Reserve may raise short-term interest rates by .25%. Very few people had this on the bingo card at the beginning of this year. As a matter of fact, we began the year with Fed Funds Futures predicting 3 rate cuts in 2026. Instead, we may have up to two rate hikes. As of this morning, the Fed Fund Futures market is pricing in a 90% chance the Fed raises rates on Wednesday. How did we get here?

Inflation has reared its head again. The Consumer Price Index report came in on Friday, and it was up 3.4% year over year. Prices have been stubbornly continuing to tick upward.

We have a new Fed Chair that is incredibly committed to fighting inflation. Kevin Warsh made it clear that inflation is too high and that if it doesn’t come down the Fed will have to address it.

Private sector demand in the economy appears to be decent enough to stand a small rate hike. In other words, it appears a small increase will not in and of itself torpedo businesses demand.

What are some of the results we may see from this action?

CD Rates may tick up a bit. Good news for savers. Many banks track the Fed Funds rate to determine how much they will pay on CD’s and Money Market accounts. So, we might see these rates tick up just a little bit.

Borrowing costs may also tick up a little bit. Small businesses may see the cost of credit going up a bit. Home borrowers have already seen their home mortgage rates increasing. The average mortgage rate from Freddie Mac is already getting close to 7%.

Businesses with tight cash flow watching it get tighter. Businesses that are already highly leveraged are seeing their borrowing costs go up as their loans renew. Some of these same businesses are seeing revenue come down with a stretched consumer. The only way out for these businesses is a dramatic reduction of costs. That is the one thing you can control. You can affect revenue, but you can’t control it. So, focus on the parts of the business where you can make a guaranteed and meaningful impact immediately. Yes, it is hard and painful. But the failure of your business would be even more painful. You can stay ahead of it if you proactively reduce your expenses now.

Now a caveat. Even though the chances are low that the Fed keeps rates where they are, there is a potential scenario in which this happens. Side note here, the chances of Texas coming back from a 23-3 deficit in the 4th quarter were almost non-existent – but it happened. A rate hike will not be popular with the White House. You can bet there will be pressure through Truth Social posts or otherwise to leave rates alone. Treasury rates have already increased, so the Fed might make the argument that the market has already priced in higher rates, and that this will be sufficient to slow inflation a bit. It’s a remote possibility, but surprising things still happen, don’t they?

Another side note – with the 10-year government bond up to 5% this week, a fork in the road is up ahead. The U.S. government simply cannot afford to borrow money at these levels. The increasing debt load of the Federal Government is going to get more attention in 2027 and 2028 – so get ready for lots of fighting and finger pointing. But maybe, just maybe, some great ideas will emerge to help the U.S. responsibly address it’s deteriorating financial health. As I encouraged small businesses earlier in the episode to cut their expenses, the Federal Government will have to do the same. It will be painful. But the alternative is a major economic catastrophe somewhere down the road that could be even worse.

You really should check out our Home Sweet Home loan program at Foundation Bank and MBC. We offer a sweet interest rate, along with confidence in your loan starting local and staying local. Start your financial conversation with us today by visiting foundationbank.org. We hope you’ll subscribe to this podcast to it in your favorite podcast app and share it on social media. Until our next episode, God bless you.

-President Chad P. Wilson, CFP

Today’s episode of “Money Matters” was written and recorded by President Chad P. Wilson of Foundation Bank/McKenzie Banking Company on September 15, 2026. This episode does not constitute financial advice. Please consult a financial professional to discuss your specific needs. Any rates mentioned are subject to change and are accurate as of the recording date. Foundation Bank/MBC is an Equal Housing Lender, Member FDIC.