Level 1 — Absolute Beginner

The Federal Reserve is the central bank of the United States. It sets the interest rate. That is the price of borrowing money.

On Wednesday the Fed may raise the rate. Prices in shops are going up fast. Higher rates make people spend less. Then prices go up slowly.

The new boss of the Fed is Kevin Warsh. He started in May. He says there is work to do.

The Fed also shows a dot plot. Each dot is one leader's guess for rates. Nobody is sure what will happen.

central bank

the main bank of a country, which sets the interest rate

interest rate

the price you pay to use money that is not yours

borrowing

taking money now and paying it back later

raise

to make something go up

prices

how much things cost in a shop

spend

to use money to buy things

dot plot

a picture of dots that shows what each Fed leader thinks rates will be

guess

an answer you are not sure about

Level 2 — Elementary

The Federal Reserve will announce its interest rate decision on Wednesday, September 16, at two o'clock in the afternoon, New York time. An interest rate is the cost of borrowing money, and the Fed's rate shapes loans across the country.

Most traders expect a small rise of a quarter of a percent. Higher rates make borrowing dearer, so families and companies spend less. When people spend less, shops find it harder to keep raising prices. That is how the Fed fights inflation.

This would be the first increase of this cycle. The chair of the Fed is Kevin Warsh, who took the job in May. He says there is still work to do.

The Fed also publishes a dot plot. Each dot shows where one policymaker thinks rates should go. Nothing is settled yet: some markets put the chance of a rise near half, others nearer six in ten.

decision

a choice that someone makes after thinking

borrowing

taking money and agreeing to pay it back

rise

a move upwards

dearer

more expensive

inflation

prices going up over time, so money buys less

chair

the person who leads a committee or a bank

dot plot

a chart of dots showing what each Fed official expects rates to be

policymaker

someone who helps decide the rules or the rates

Level 3 — Intermediate

At two o'clock on Wednesday afternoon, New York time, the Federal Reserve will publish an interest rate decision that has divided Wall Street for a fortnight. An interest rate is the cost of borrowing money, and because the Fed's rate feeds into mortgages, car loans and company debt, a quarter point either way reaches millions of household budgets. Most forecasters expect a rise of a quarter of a percentage point, the first of this cycle.

The logic is straightforward. Dearer credit discourages spending, weaker demand makes it harder for firms to push through price increases, and inflation should then cool towards the central bank's two percent target. Kevin Warsh, who became the seventeenth chair of the Fed in May, argues that there is still work to do and that recent readings have not shown enough progress.

Others are unconvinced. Analysts who expect a hold point out that the pressure on prices comes largely from energy and oil shocks and from the Iran war, forces an American interest rate cannot switch off. The betting is genuinely close: estimates of a rise have ranged from roughly forty eight percent on the prediction market Kalshi to about sixty percent on the CME FedWatch tool.

The decision arrives with the dot plot, a chart on which each policymaker marks where they expect rates to sit in later years without signing their name. Warsh then faces reporters. Friday brings another worry: about 9.6 trillion dollars of stock options expire at once, the largest triple witching on record, which can exaggerate price swings.

decision

the choice a committee announces after debating

mortgages

long loans used to buy a home

dearer

more costly than before

demand

how much people want to buy at current prices

target

the level a central bank is trying to reach

hold

a decision to leave the interest rate unchanged

dot plot

an unsigned chart showing each official's expected future rate

triple witching

the day when several kinds of market contracts expire together, which can make prices jump

Level 4 — Advanced

At 2 p.m. Eastern time on Wednesday, September 16, the Federal Reserve will disclose whether it is lifting its policy rate, the benchmark cost of borrowing that anchors everything from overnight bank funding to thirty-year mortgages. A quarter point increase, the expectation most widely held, would be the first upward move of this cycle and therefore the defining act of Kevin Warsh's young tenure. He succeeded Jerome Powell on May 22 and has since argued that disinflation is unfinished business, with recent readings offering insufficient progress toward the two percent objective.

The transmission mechanism is textbook and, for that reason, easily oversold. Tightening raises the price of credit, compresses interest-sensitive demand and eventually erodes firms' pricing power. Where the argument frays is causation: much of the present price pressure originates in energy and oil markets disturbed by the Iran war, and no American policy rate can conjure barrels of crude. Hawks reply that supply shocks harden into expectations if a central bank looks indifferent; credibility, not crude, is what the Fed is defending.

Markets have swung violently. Before Warsh's keynote at the Jackson Hole symposium, roughly seventy percent of the implied probability sat on a hold; afterwards the balance tipped toward a hike, though nothing near certainty. Recent snapshots span a wide band: about forty eight percent on Kalshi and forty nine on Polymarket against some fifty six to sixty percent on the CME FedWatch tool, with later readings higher still. Anyone quoting a single figure is selling conviction the data does not support.

The accompanying dot plot, an anonymous scatter of each participant's projected rate path, may matter more than the decision itself, since it reveals whether Wednesday is a one-off or the opening of a sequence. The calendar is crowded: August retail sales, July business inventories, the September NAHB housing market index and the export and import price indices all land the same day, with Lennar reporting and Salesforce hosting its Dreamforce investor day. Friday then delivers the largest triple witching on record, the simultaneous expiry of roughly 9.6 trillion dollars of stock options, a mechanical event that magnifies whatever direction sentiment has already chosen.

benchmark

a reference level that other prices or rates are measured against

tenure

the period during which someone holds an office

disinflation

the process of price rises slowing down, without prices actually falling

tightening

making money and credit more expensive and harder to get

pricing power

a firm's ability to charge more without losing customers

hawks

officials who favour higher rates to keep inflation down

dot plot

an anonymous chart of each policymaker's projected path for interest rates