Fed decision in Dec 2027?
My independent estimate is that the Fed is somewhat less likely than the market implies to leave rates unchanged at the December 2027 meeting, because the long horizon makes some policy move by then more likely than a clean hold. Still, a no-change decision remains the single most likely outcome at that meeting.
Analysis
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.
Arguments
For
- The Fed frequently pauses when uncertainty is high, so a zero-basis-point decision remains the most common single meeting outcome.
- If inflation and growth both cool gradually, the Fed could prefer to wait rather than make a late-cycle move.
Against
- Over a 15-month horizon, it is more likely than not that the policy rate will change at least once before the meeting.
- If the economy weakens or inflation re-accelerates, the Fed could be in a cut or hike cycle by December 2027 instead of holding steady.
Key drivers
- The 15-month horizon leaves plenty of time for the Fed to change policy before the December 2027 meeting.
- A hold is still the modal FOMC outcome because the Fed often waits for stronger evidence before moving rates.
Risk factors
- Unexpected inflation persistence could force the Fed to keep tightening or resume hikes.
- A mild recession or growth scare could lead to cuts well before December 2027, making a hold less likely.
Scenarios
Best case
Inflation moderates without a recession, allowing the Fed to cut earlier and then sit on hold by December 2027, making the meeting a no-change decision at a lower policy rate.
Most likely
The Fed is at a different point in the cycle by December 2027, with a cut or a prolonged pause both plausible, but a simple hold still narrowly leads among individual outcomes.
Worst case
Inflation re-accelerates or financial conditions tighten sharply, forcing the Fed to hike before or at the December 2027 meeting, defeating the hold outcome.
Outcomes
| Outcome | AI | MKT |
|---|---|---|
| Fed maintains rate | 44% | 52% |
| Cut >25bps | 14% | 9% |
| Cut 25bps | 18% | 9% |
| Hike 25bps | 16% | 9% |
| Hike >25bps | 8% | 9% |
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