Fed rate hike in 2026?

The Federal Reserve, under new Chair Kevin Warsh, has shifted to a hawkish stance after holding rates steady at 3.50%–3.75% in June. Nine of 18 FOMC participants now project at least one rate hike by year-end 2026, with the median projected rate rising to 3.75%. This internal Fed consensus, combined with core PCE inflation at 3.3% and a resilient labor market, creates strong upward pressure on rates. Bank of America has reversed its prior dovish view and now forecasts three 25-bps hikes in September, October, and December 2026, totaling 75 bps of tightening.

Market futures strongly support this outlook. CME FedWatch data from July 13 shows an 80% expectation of a rate increase at the September 15–16 meeting, with September odds described as "overwhelming." LSEG data projects approximately 41.2 bps of increase in 2026, while prediction markets assign a 61% probability to at least one hike this year. Traders have trimmed bets on a July hike to 30% but remain confident in a September move, with futures fully pricing in a hike in October and potential for another in December.

Despite dissenting views from TD Securities, BNP Paribas, and J.P. Morgan—which forecast no changes through 2026–2027 citing soft inflation and solid growth—the dominant narrative among major banks (BofA, Deutsche Bank), Fed officials, and futures markets favors tightening. Inflation remains above the 2% target, and war-related energy shocks from the Iran conflict add further inflationary risk. The easing bias has been abandoned, and zero rate cuts in 2026 are priced at ~80% probability, reinforcing the likelihood of a hike rather than a hold or cut.