Fed decision in Dec 2027?

With more than a year until the December 2027 meeting, the policy path is highly uncertain and the distribution should be much wider than a typical near-term FOMC call. A hold is still the most common single-meeting outcome because the Fed tends to wait for clearer evidence before changing rates, but over a 15-month window the economy has enough time to shift materially, making one or more cuts or hikes by then a real possibility. My base case is that the Fed is more likely to be in a different policy regime by December 2027 than to be exactly unchanged at that meeting, which pulls the probability of a zero-basis-point move below a simple majority.

The main force against a hold is the possibility that the Fed has already moved at least once before then, especially if inflation cools further or growth softens. In that case, the December 2027 meeting could easily be a cut, even if only modestly. On the other hand, a stubborn inflation backdrop, resilient labor markets, or renewed price pressure could keep the Fed on pause or even force a hike, and the longer horizon gives those scenarios time to develop. Because both easing and tightening paths remain plausible, the market should not treat a hold as close to certain.

Compared with the current market price of 52% for a hold, I think the market is a bit too optimistic on no change. The market appears to be anchoring on the idea that the Fed usually prefers inertia, but that underweights the amount of macro drift that can happen over 15 months. I would price the hold below the market and spread the remaining probability more evenly across cuts and hikes than the current board suggests.