Investing.com - The Federal Reserve is widely expected to raise its benchmark interest rate by 25 basis points today, which would mark the first hike since July 2023 and push the target range to 3.75%-4.00%.

Interest rate futures were pricing close to a 90% probability of the move, up from roughly 70% before the latest inflation data, according to CME FedWatch Tool. With the outcome largely settled, the dot plot and Chair Kevin Warsh's press conference are the real variables markets will scrutinize.

A hawkish dot plot projecting further hikes would push long-duration yields higher and TLT sharply lower, while any signal of a near-term pause would offer the opposite relief.

A Reuters poll conducted after Friday's August CPI and PPI readings found that 86 of 101 economists surveyed expected a quarter-point move. Goldman Sachs, J.P. Morgan, HSBC, and Deutsche Bank had all converged on the same call, citing stronger-than-expected price data and oil prices climbing above $100 a barrel.

"The combination of slightly stronger than expected core CPI and the renewed rise in energy prices is likely just enough to push consensus toward hiking 25bp at this week’s meeting," economists at Citi wrote in a note.

Morgan Stanley went further, forecasting two hikes — September and December — pointing to what it called "slower and less convincing" disinflation, AI-driven demand, and credibility concerns surrounding Warsh, who took over as Fed chair in May.

"We see arguments for both a hike and a hold," the bank's research note said, "but signs of second-round effects from energy prices, strong demand tied to AI-related investment, a neutral rate that is possibly temporarily higher, and concerns about credibility mean the balance of risks now argues for a somewhat more restrictive policy."

On the other hand, Citi's base case "is for the Fed to hike just once and then return to cuts in June 2027."

All eyes on Warsh

Warsh has deliberately avoided forward guidance since taking the chair. That silence makes the dot plot, the committee's anonymous projection of where rates are headed, the primary lens through which markets will read the Fed's intentions.

The median dot for end-2026 and 2027 has not been made public ahead of the decision and will be the single most market-moving element of the release.

"We would not be surprised by a unanimous decision or up to two dissents in favor of holding policy rates steady," economists at Citi said, adding that "Chair Warsh will be able to bring most if not all Fed officials along."

A rate hike paired with relatively dovish messaging could help Warsh secure broad support, potentially even a unanimous vote.

New York Fed President Williams did not appear to be leaning toward a hike in his recent comments, but he kept his options open and could still back the Chair. Given the divisions across the committee, however, as many as two dissents in favor of holding rates steady would not be surprising.

In order "to forge a consensus Warsh would likely be expected by his committee to explain in the press conference that this week’s hike is more of a “calibration” and should not be read-through to a series of further hawkish policy actions," Citi said.

"He could potentially communicate this as consistent with his preference for limited guidance and a meeting-by-meeting approach to policymaking."