NerdWallet: “The Fed will probably raise rates on the 16th”
September 3, 2026, The Nerdy Investor Bimonthly, by NerdWallet — In this month’s newsletter, reporter Samuel Taube, writes “The hike is nigh, and bonds are interesting now.”
“Inflation is running above our 2 percent target. So the Fed’s predominant focus right now should be on prices.” That’s one of several quotes from Federal Reserve Chair Kevin Warsh’s Aug. 28 speech at the Jackson Hole Economic Symposium that have shifted markets toward thinking we’re getting an interest rate hike at the Fed’s next meeting on Sept. 16.
The Chicago Mercantile Exchange’s FedWatch tool, which uses futures market data to forecast interest rate changes, currently gives more than 50-50 odds that the Fed will raise rates by 0.25 percentage points in a couple of weeks in an effort to tackle stubborn inflation.
It’s a pretty dramatic reversal from where we were earlier this year, when we were expecting the Fed to cut rates. And that reversal has suddenly made the most boring part of your portfolio — bonds — worth paying attention to.
Bond yields have spiked ahead of time. Could they go higher?
In the days after Warsh’s speech, the 30-year Treasury yield lurched above 5.25%, hitting its highest level in more than two decades. The 10-year yield also hit a multi-year high above 4.75%.
Long-term bond yields reflect investors’ long-term expectations about inflation and interest rates, and right now, investors are adjusting to the idea that high inflation and high interest rates are here to stay for the time being.
Shorter-term Treasury yields reflect shorter-term expectations, like what the Fed is going to do with benchmark interest rates at its next meeting. After Warsh’s speech, the 3-month, 6-month and 1-year Treasury bills also saw their yields rise, in anticipation of a 25-basis-point hike on the 16th. Many T-bills now pay higher yields than typical high-yield savings accounts and certificates of deposit (CDs).
You might think that yields will rise further if the Fed does hike benchmark rates — but according to Kody Sherlund, a New York-based certified financial planner, we might actually see the opposite happen with long-term bonds. That’s because the hike is likely priced in now, and a non-hike is now the wildcard scenario.
“In the world of bonds, a hike reinforces the Fed’s credibility on inflation, and could actually help stabilize or ease long-end yields, since it reduces the inflation risk premium investors are demanding. A no-hike scenario, however, could be a little rockier for equity and bond markets if the Fed is perceived as being okay with above-target inflation,” Sherlund said in an email interview.
We saw this dynamic in action back in late July, when the Fed narrowly voted to hold rates steady. Markets didn’t like that — they felt that the Fed was falling behind on tackling inflation, and long-term yields surged.
We might be in for the same “up-is-down” reaction on the 16th — holding rates steady might make yields go up, while raising rates might make yields go down.
So is now a good time to take advantage of high yields?
A quick Bonds 101 recap: Bonds pay a fixed dollar amount of principal and interest if you hold them to maturity, but their market price fluctuates over time.
When we say that a bond’s yield has risen, we really mean that its market price has fallen, because paying a lower price means earning a higher profit on the payment value of the bond in percentage terms.
That also means that if you buy a bond while yields are high (i.e. prices are low) and hold it to maturity, you lock in that high yield — even if yields fall shortly after.
With that in mind, it might be tempting to take advantage of high yields by investing in bonds right now — especially given that they might actually decline after the expected rate hike. What are the pros and cons of that?
Marguerita Cheng, a certified financial planner based in Maryland, says that in addition to paying high yields right now, T-bills do have some advantages over other short-term savings vehicles like CDs.
“T-bills provide income that’s exempt from state and local taxes. CDs are taxable at the federal and state level,” Cheng says.
She also notes that T-bills are more liquid than CDs — they don’t have early withdrawal penalties. And although they’re not FDIC-insured like CDs are, they’re backed by the full faith and credit of the U.S. government.