Amid ongoing supply-chain disruptions from the Iran conflict and investor doubts about Federal Reserve (Fed) credibility, J.P. Morgan Wealth Management strategists are now penciling in a 25-basis-point rate increase at the central bank’s next meeting in September. 

While the Fed held rates steady at a range of 3.50% to 3.75% during its July Federal Open Market Committee (FOMC) meeting, the decision underscored how finely balanced the debate has become. The committee voted 9-3, with three members dissenting in favor of a quarter-point rate hike. Fed Chair Kevin Warsh once again offered limited forward guidance in his press conference, giving markets little to go on when determining the direction of monetary policy. 

That lack of clarity matters. After all, when markets question the Fed’s reaction function – that is, how the Fed tends to respond to incoming data – policymakers have a greater incentive to take a credibility-reinforcing step. In our view, that raises the odds of a September rate hike. 

“The combination of a slower-than-expected normalization of supply chains around the Strait of Hormuz and market questioning of inflation-fighting credibility after the July FOMC meeting has lowered the bar for a rate hike in September,” J.P. Morgan Wealth Management’s Chief Investment Strategist Phil Camporeale said.

What changed in our Fed outlook – and why

With the focus already shifting to September’s meeting, our strategists now believe that the Fed is more likely than not to hike rates by 25 basis points. Markets are also leaning in that direction, with futures pricing implying a roughly 65% chance of a September hike.¹

Our strategists’ previous base case was for the central bank to remain on hold through 2026, with inflation moderating as energy prices fell and supply chains healed. Still, this is not seen as the start of an aggressive tightening cycle with regard to monetary policy, but rather as a measured move that would likely be aimed at reinforcing the Fed’s inflation-fighting credibility. 

With the conflict in Iran caught in somewhat of a “Groundhog Day” pattern of de-escalation and re-escalation, normalization of supply chains around the Strait of Hormuz may take longer than previously expected, keeping energy-related costs elevated in the near term.  

What’s more, the July FOMC meeting generated more uncertainty about the Fed’s reaction function as it once again left rates unchanged, increasing the risk that markets interpret the hold as greater tolerance for short-term inflation. That dynamic showed up quickly in bond markets. Immediately after the July meeting, short-term yields moved modestly lower, but longer-term yields rose sharply, with the 30-year Treasury reaching its highest level since 2007.²

The takeaway: Investors repriced longer-run inflation risk (and demanded more compensation for holding longer-term bonds), leaving markets more sensitive to any perceived stumble in Fed credibility. In that environment, a single September hike looks like a lower bar – less about an overheating economy and more about keeping inflation expectations anchored. 

What a rate hike could mean for markets and portfolios (bonds, volatility and oil)

Even if the Fed delivers only one hike, longer-term yields can still move meaningfully as investors reassess inflation and growth risks. Those moves can matter for markets because they influence broader financial conditions and the rate used to value longer-dated cash flows – though the equity impact depends on why yields are moving (stronger growth versus higher inflation risk versus a risk-off shock). 

In our base case, we still expect the conflict to eventually de-escalate, but the margin of safety is narrowing. If blockades persist and reserves cannot cushion supply, oil prices could climb toward $120 per barrel (up from around $80 per barrel as of August 3, 2026). At that level, the potential impact is likely manageable for the U.S. economy; however, it could present a challenge for markets and could lead to slower economic growth, along with potentially higher inflation. In our strategists’ view, a more recessionary shock would likely require oil to move above $140 per barrel, alongside a sharp equity sell-off. 

For investors, the key is to prepare for a period of rates-driven volatility without assuming a long series of hikes. Yields remain in an uptrend, and rate volatility can spill into other asset classes, so it may be wise to watch for signals that yields could begin to peak. Still, our strategists envision September as a standalone hike given the macro backdrop of stable economic growth, moderate inflation and mixed data. 

Between now and September, the key swing factors will likely be incoming inflation prints and inflation expectations, alongside any signs that energy prices and supply-chain conditions are stabilizing. A string of cooler inflation data – or faster easing in energy-driven pressures – could reduce the need for a credibility-focused hike. 

The bottom line

Our J.P. Morgan Wealth Management strategists now expect a single quarter-point Fed rate hike in September, a modest shift from our prior 2026 “on-hold” base case. Two forces have driven this change: Supply chains have been slower to recover than expected as the conflict in the Middle East drags on, while July’s Fed meeting left markets more uncertain about the path forward for interest rates. Still, if supply chains do normalize faster than expected and inflation expectations cool meaningfully in upcoming data, the Fed could ultimately choose to stay on hold in September. 

In an environment with higher energy-driven inflation sensitivity and rate volatility, the practical takeaway for long-term investors is to stay diversified, manage risk tolerance and make sure your investment plan is aligned to your long-term goals.

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