September 18, 2026 10:42AM # Fed’s Rate Hike Exposes Lack of Underlying Framework By [Jai Kedia](https://www.cato.org/people/jai-kedia) --- SHARE Listen to this article Generated with [ ElevenLabs](https://elevenlabs.io/) AI technology. Loading the [Elevenlabs Text to Speech](https://elevenlabs.io/text-to-speech) AudioNative Player... The Federal Open Market Committee [voted](https://www.cnbc.com/2026/09/16/fed-rate-decision-september-2026.html) unanimously yesterday to raise its target range a quarter point to between 3.75 and 4 percent. It is the first increase since July 2023, and it follows five straight meetings this year at which the committee met. Updated projections put the median target at 4.1 percent by year-end, with 16 of 18 participants expecting one more increase before then. The move is easy enough to defend. Twelve-month CPI inflation stood at [3.4 percent](https://www.bls.gov/news.release/cpi.nr0.htm) in August, well above the 2 percent goal, and prices have run above that goal for five and a half years. Unemployment held at [4.1 percent](https://www.bls.gov/news.release/empsit.nr0.htm), and both the rate and the level of unemployment have changed little over the past year. When inflation runs above target and the labor market nears full employment, both prongs of the Fed’s dual mandate point the same way: raise the target rate and tighten conditions. The trouble is that both prongs pointed that way more strongly in the spring. Twelve-month inflation reached [3.8 percent](https://www.bls.gov/news.release/archives/cpi_05122026.htm) in April and [4.2 percent](https://www.bls.gov/news.release/archives/cpi_06102026.htm) in May, the highest reading since April 2023. Unemployment over those months was no lower than it is today. Inflation was higher, employment was no weaker, and the committee held at every meeting. Nothing the Fed has published explains why 4.2 percent inflation called for patience while 3.4 percent calls for tightening. Unfortunately, this is what a discretionary Fed produces. The decision can be right on its merits and still leave markets with no way to anticipate the next one, because the only thing that changed between June and September was the committee’s judgment. The remedy is commitment. The Fed should be required to set its target rate using a monetary policy rule—an algebraic formula linking the target rate to macroeconomic indicators like inflation and unemployment. Which rule matters [far less](https://www.cato.org/policy-analysis/comprehensive-evaluation-policy-rate-feedback-rules) than having one. The committee can choose its own inputs and coefficients and publish them. The value of a rule lies less in its precision than in sticking to it, which turns each decision from a judgment call into the application of a standard the public can check. A rule would also solve a problem Fed chairman Kevin Warsh says he wants to solve. He has been openly skeptical of the Fed’s communications, declines to submit a dot to the projections, and has assigned one of his five [task forces](https://www.federalreserve.gov/newsevents/pressreleases/monetary20260709a.htm) to review how the Fed speaks. But less Fedspeak is not the same as clearer policy. A published reaction function is the best replacement for forward guidance. Markets can work out the likely path from data they already hold, and no one from the FOMC must add their subjective narratives. Commitment to a rule would also shield the Fed from threats to its independence. Hours after the decision, President Trump posted that US interest rates [“should be 1%, or less”](https://finance.yahoo.com/economy/policy/articles/trump-says-us-interest-rates-204406419.html) and called on officials to lower them “AND FAST!” He left Fed Chair Kevin Warsh alone personally, telling reporters he retains [confidence](https://www.cnbc.com/2026/09/16/trump-fed-interest-rate-warsh.html) in the chair, but went after the committee instead, describing the board as “very hostile” and “very political.” He also said he had told Warsh he may as well [vote](https://finance.yahoo.com/economy/policy/article/trump-slams-the-fed-rate-hike-says-he-told-warsh-you-might-as-well-vote-with-the-board-205145796.html) with the board because it would not matter. Trump’s outbursts against the central bank are [dangerous and counterproductive](https://www.cato.org/multimedia/cato-video/check-fed-why-politically-motivated-monetary-policy-dangerous), but they are not new. In fact, measured against his [attacks](https://www.cato.org/commentary/feds-failures-set-stage-trump-powell-heres-one-solution) on Jerome Powell, this is the restrained version. It is unlikely to stay restrained, and the Fed’s current defensive playbook is inadequate to deal with it when the attacks become increasingly unhinged. A committee that cannot point to a standard has only the chair’s personal credibility to offer against the charge that its decisions are political. One person’s reputation is not a framework. Under a rule, a demand for a 1 percent target range becomes a demand to deviate from a published benchmark so people can see how far off the target the president really is. Hopefully, the inflation framework [task force](https://www.federalreserve.gov/monetarypolicy/inflation-framework-task-force.htm) seriously considers rules-based monetary policy and offers it to Warsh as a proposal for Fed reform. But it is not the only avenue: Congress can act and force the Fed to follow a rule by implementing something akin to the [FORM Act](https://www.congress.gov/bill/114th-congress/house-bill/3189). Under such a system, the Fed would have to pick and then follow a rule. It could update the rule at intervals, such as at its five-year framework reviews. It could only deviate from the rule if it explained such a decision in writing and in testimony to Congress. ##### Related Tags [Economics](https://www.cato.org/economics), [Banking and Finance](https://www.cato.org/banking-finance), [Monetary Policy](https://www.cato.org/monetary-policy), [Center for Monetary and Financial Alternatives](https://www.cato.org/center-monetary-financial-alternatives), [Inflation](https://www.cato.org/inflation) [![Creative Commons License](/build/cato_2020/images/creative-commons.svg)](http://creativecommons.org/licenses/by-nc-sa/4.0/) This work is licensed under a [Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License](https://creativecommons.org/licenses/by-nc-sa/4.0/).