2026-09-17 Thursday

The Federal Reserve's September 2026 Summary of Economic Projections (SEP) shows a median projected federal funds rate of 4.1% at the end of 2026, above the June projection, and 3.2% in the longer run, unchanged from June. The projected medians decline across 2027, 2028 and 2029, and each year stands above the June projection for the same year. This upward revision to the policy path is the central finding: the Committee now expects a shallower and slower descent to its longer-run neutral rate.

The inflation projections explain the shift. Median PCE inflation is 3.7% in 2026, moderating to 2.3% in 2027, 2.1% in 2028, and at the inflation target in 2029. Core PCE inflation is 3.4% in 2026, 2.5% in 2027, 2.2% in 2028, and returns to the Federal Reserve's target in 2029. The 2026 core rate is only modestly below June's projection, but the 2027 core rate is revised slightly higher than June's, indicating a slower expected disinflation. Real GDP growth is projected at 2.3% in 2026, 2.4% in 2027, 2.2% in 2028, and 2.1% in 2029, with a longer-run rate of 2%. The unemployment rate is 4.1% in 2026, 4.1% in 2027, 4.1% in 2028, and 4.1% in 2029, with a longer-run rate of 4.2%.

The SEP is based on eighteen FOMC participants' individual projections, with medians, central tendencies, and ranges reported. The confidence intervals around these projections are derived from historical forecast errors over the previous twenty years, but the Fed cautions that the dispersion of projections across participants is much smaller than the average forecast errors, and that the federal funds rate confidence intervals are not strictly consistent with the projections because they are assessments of appropriate policy, not forecasts of the most likely outcomes. The federal funds rate confidence interval is truncated at zero, the bottom of the lowest target range ever adopted.

The market effect is a higher-for-longer front end. With the median 2026 fed funds rate at 4.1% and 2026 PCE inflation at 3.7%, the real policy rate remains modestly positive, keeping short-term Treasury yields elevated. The slower convergence of inflation to target—core PCE still at 2.5% in 2027—implies that the term premium on longer-dated Treasuries will persist unless the projected disinflation materializes. Compared with the ECB's September projections, which show euro area inflation running above target in 2026 and policy rates rising, the Fed's path is less aggressive but still restrictive, maintaining pressure on global duration.

The cabinet approved a tax reform outline carrying a temporary two-year cut in the consumption tax rate on food and beverages, which Finance Minister Katayama said will be funded without special deficit bonds and settled during budget compilation. The change of behaviour is the funding rule, not the rate: the same outline leaves the defence spending target at 3.5% of GDP under consideration, so the two commitments compete for the same annual bond issuance Katayama says will be set at a level ensuring market confidence. With the Bank of Japan lifting the policy rate further and signalling more, a consumption tax cut widens the gap between what the budget collects and what it spends, and the JGB market prices that gap through the size of each issuance calendar rather than through the tax line itself.

Finland's Financial Supervisory Authority (Finanssivalvonta) said its ongoing supervision found shortcomings and development needs in how Finnish-licensed life and non-life insurance companies define and document their risk appetite, and it will target supervisory measures at the deficiencies on a risk-based basis. A preliminary review found that not all companies had defined or documented risk appetite by risk type as required, with several using the standard-formula solvency ratio or business indicators such as investment return or customer numbers as risk limits, which the authority said is insufficient. The channel runs through the solvency ratio those insurers already use as a de facto limit: if supervisors force risk appetite to be defined by risk type, the standard-formula ratio loses its role as the binding constraint and the limits that actually govern the bond portfolios of Finnish life insurers — the sector's largest asset class — have to be restated. The finding sits in a supervisory statement from a national authority that does not carry the weight of EIOPA guidance, so the operative text is the Finnish-language supervisory release rather than the English summary. What settles it is whether Finanssivalvonta converts the review into formal measures against named companies, and whether the risk-appetite definitions it demands appear in the next round of solvency reporting.

At the Central Bank of Sri Lanka's inaugural Reserve Management Conference 2026 in Colombo, a keynote speaker described foreign reserves as a country's first line of defence against external shocks, using Sri Lanka's 2022 crisis as the case where inadequate buffers constrained imports, complicated debt servicing and fuelled inflation. The speech rejected judging adequacy by months of imports alone, arguing short-term external liabilities, debt-service requirements and capital-flow volatility must be weighed together, and noted renewed central bank interest in gold as a store of value carrying no sovereign credit risk. For a sovereign whose 2022 restructuring set the template for the frontier complex, the operative channel is the buffer itself: reserves accumulated in calm periods are drawn down fast in shocks, and the pace of that drawdown sets how long a country can service external debt before an IMF programme becomes the only buyer. The argument sits in the conference keynote rather than in any published reserve template, and no adequacy metric was quantified; the test is whether Sri Lanka's own reserve disclosures start reporting short-term external liabilities and debt-service requirements alongside the import-cover headline, and whether gold's share of the published composition rises from its current level.

ECB Vice-President Boris Vujčić said in Berlin on 1 September 2026 that household expectations surveys have become a direct input into monetary policy analysis, because households form expectations with selective attention, incomplete information and beliefs dispersed by income, wealth, housing, financial literacy and trust in institutions. ECB Consumer Expectations Survey evidence he cited shows geopolitical risk can significantly worsen euro-area household sentiment and spending intentions, and that perceived macroeconomic uncertainty persistently reduces spending, with mortgage repricing feeding into consumption with long and uneven lags. The channel to the curve runs through the resets: if repricing lags differ by contract type and country, the pass-through from the ECB's September hike to consumption is slower and more uneven than a single aggregate elasticity implies, which changes how much further tightening the Council reads as necessary to move demand. The material is the Berlin speech itself, and the settling point is the next Consumer Expectations Survey release: watch whether the share of households reporting a mortgage reset in the past twelve months rises, and whether longer-term expectations stay centred on the inflation target while short-term ones move.

The Securities and Exchange Commission proposed to rescind the shareholder-proposal rule under the Securities Exchange Act of 1934, which it says exceeds the scope of the Commission's statutory authority and intrudes into matters of state law. The proposal also includes reforms to the proxy solicitation process. Removing the federal framework for shareholder proposals at US-listed companies shifts the question of who may put a resolution on a proxy ballot to state corporate law and to each company's charter, so the cost of the governance channel — the expense of a contested solicitation and the terms on which issuers can exclude a proposal — moves from a uniform federal rule to a state-by-state patchwork. The proposal is buried in the SEC's own rulemaking release rather than in the market-facing headlines that carried the proxy-solicitation reforms, and the two halves of the package are being read as one. What settles it is the comment period and the adopting release: whether the rescission is finalised as proposed, and whether the proxy-solicitation reforms are adopted in the same release or split off.

In a speech on Japan's economy and monetary policy, the speaker said the US economy has grown moderately despite the wide-ranging tariffs imposed in April 2025 by the Trump administration, with the actual impact limited, and that US employment slowed in 2025 but is heading toward improvement in 2026. The Federal Reserve cut rates in September, October and December 2025, but FOMC projections shifted from suggesting further cuts at the start of 2026 to potential rate hikes from mid-2026, while the speaker described a US "north wind" policy of pressure over persuasion from the start of 2025 as a negative for growth. The channel is the FOMC's own projection path: a shift from cuts at the start of 2026 to hikes from mid-2026 reprices the front end of the Treasury curve and the dollar leg of every carry position, and the speaker's read that the April 2025 tariffs did limited damage is what allows that shift to stand. The material sits in a BIS speech on Japan rather than in the FOMC minutes or the Summary of Economic Projections, so the projection shift is being read second-hand. What settles it is the next FOMC statement and the updated dot plot: whether the mid-2026 hike language survives into the projections themselves, and whether the tariff impact is still described as limited once the 2025 employment slowdown is revised.

The Bermuda Monetary Authority proposes a phased resolution regime for commercial insurers, beginning with three foundational elements: designating itself as Resolution Authority, defining five resolution objectives, and scoping the regime to domestic insurers and BMA-supervised IAIGs. The framework would be transposed into law via amendments to the BMA Act 1969 and the Insurance Act 1978, with consultation comments due by 15 December 2026.

The BMA argues that co-locating supervisory and resolution decision-making within the authority enables coordinated, coherent and timelier decision-making, and that building on existing structures ensures cost efficiency and avoids a separate body potentially requiring additional industry funding. It also assumes resolution requirements can be integrated into existing supervisory and enforcement frameworks, minimising disruption, and that not all insurers subject to the regime will necessarily require a resolution plan. The paper draws on the FSB Key Attributes, IAIS ICPs and ComFrame, and other jurisdictions' experience, applying the IAIS proportionality principle and a risk-based approach.

Counterpoints include a potential conflict of interest between the BMA's supervisory and resolution roles, to be mitigated by operational separation, distinct staffing, dedicated reporting lines and periodic quality assurance reviews. The BMA also acknowledges that an overly rigid or narrowly defined scope could create legal and financial implications, and that certain elements of a resolution framework may be irrelevant or disproportionate for certain groups of entities. Resolution powers, tools, resolution planning aspects, cross-border cooperation and safeguards fall outside the scope of this consultation and will be addressed in future phases.

The proposed scope would extend the BMA's crisis-management powers over the commercial insurer classes and BMA-supervised IAIGs, with resolution planning criteria based on nature, scale, complexity, substitutability, cross-border operations and interconnectedness. For professional investors, the mechanism is that the BMA's designation as Resolution Authority, enacted via amendment to the BMA Act 1969, and the scoping of the regime via amendment to the Insurance Act 1978, would give the authority a formal mandate to intervene in the failure of large commercial insurers, potentially affecting recovery and resolution planning requirements and the cost of capital for affected entities.

The ECB wage tracker puts negotiated wage growth at 2.7% in the first quarter of 2027 and 2.8% in the second quarter, a modest step up from the 2026 profile, according to the Banco de España's reading of the indicator. The comparison base is the weak one: with one-off payments smoothed, the tracker averages 2.2% in 2026, and the unsmoothed variant moderated to 2.6% from 3% in 2025. That 2026 dip is largely mechanical — one-off payments made in the second half of 2024 were not repeated, and their drag dissipates over the course of 2026. Strip one-off payments out entirely and the 2026 average is 2.6%, so the underlying negotiated trend is steadier than the headline path suggests. The tracker is built from a granular database of active collective bargaining agreements in nine euro area countries, aggregated first to country level using employee coverage and then to the euro area with time-varying weights based on total compensation of employees. The forward-looking quarters rest on thin coverage: 32.5% of employees for the first quarter of 2027 and 25.1% for the second, against 46.9% for 2026 as a whole. The authors are explicit that the forward-looking component is not a forecast — it only captures information currently available for active agreements — and that the series is subject to revision, particularly at the turn of the year when many agreements are signed or renewed in the first quarter in some countries. They also warn that the tracker does not reproduce the indicator of negotiated wage growth precisely, so deviations are to be expected over time. Coverage is expected to rise steadily as more agreements are signed, and the forward horizon extends to the third quarter of 2027 in the November 2026 release and to full-year 2027 in December. The policy-relevant cross-check is broader compensation: the September 2026 ECB staff projection has compensation per employee growing 3.3% in 2026, above the negotiated-wage signal. For the rate path, the mechanism runs through the ECB's wage-pressure assessment: a tracker settling near the high twos into 2027, with the 2026 softness explained by a fading one-off effect rather than by weaker bargaining, keeps services inflation pressure in the projection exercise that follows the September 2026 hike. The revision risk is concentrated in the first quarter, when the large national agreements are renewed and coverage for the forward quarters fills in.