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When I select the item, the Mac tries to connect using the old password. The Mac shows the Personal Hotspot item in the Wifi menu, where it used to work. I think that my Mac thinks the new iPhone 7 is the old iPhone 6 because they have the same name. My Mac remembers my old iPhone 6 and remembers the Hotspot password for that old connection. Most things worked fine, but not Hotspot. I replaced my old iPhone 6 with an iPhone 7 and transferred all my apps and data from the 6 to the 7.
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My Mac and my old iPhone 6 used to work with personal hotspot just fine.
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