Another Fed rate hike in 2026?
A December hike remains the most plausible path to a Yes outcome, but the probability is a bit lower than the current market price because officials are emphasizing patience and recent data have softened. I still think Yes is more likely than No, with the main question being whether the Fed follows through on its own hawkish dot plot by year-end.
Analysis
The key fact supporting Yes is that the Fed already moved once in September and its own year-end projections still point to a somewhat higher policy rate than the current range. That makes another 25 basis point hike by December 2026 a natural baseline if inflation or growth does not clearly improve enough to change the Committee’s stance. The current market-implied probability is high, and that reflects a reasonable reading of the dot plot, the hawkish tone from some officials, and the fact that the market window still includes the December meeting as a live decision point.
At the same time, the balance of recent commentary has become less aggressive than it looked when October was the main focus. Several officials have stressed that they want more data and see no urgency to act immediately, which implies the Fed may prefer to wait rather than force another hike at the next opportunity. Softer labor data and easing inflation momentum also matter because they reduce the pressure to tighten further, and if those trends persist into late fall, the Committee may judge that September was enough for now. In that case, the Fed could keep rates unchanged through December even if some members remain conceptually open to one more move.
Historical and market-pattern considerations still favor a Yes outcome more than a clean No. When the Fed has just resumed tightening after a long pause, the first hike is often followed by at least one follow-up move if the economic backdrop does not deteriorate meaningfully. The September dot plot, the reports of some analysts expecting a December hike, and the willingness of some officials to discuss additional tightening all suggest that another increase is not a tail event. But the latest shift in messaging away from urgency means the market is probably pricing in a little too much certainty, so I would shade slightly below the current price rather than above it.
Arguments
For
- Arguments for Yes: The Fed’s own projected year-end rate still points to another increase from the current range.
- Arguments for Yes: Several forecasts and some hawkish officials continue to treat December as a realistic window for an additional hike.
Against
- Arguments against Yes: Recent labor and inflation signals have reduced urgency and make a pause more defensible.
- Arguments against Yes: Multiple Fed officials have emphasized waiting for more data, which could translate into no further move in 2026.
Key drivers
- The September dot plot still implies a year-end policy rate above the current range, which is consistent with one more hike.
- December remains the main live meeting for action, while October now looks less likely after softer data and cautious Fed messaging.
Risk factors
- If inflation and employment data continue to cool, the Fed may decide that another hike is unnecessary by December.
- A broader shift toward patience among FOMC members could keep the Committee on hold even if some officials remain hawkish in public remarks.
Scenarios
Best case
Inflation stays sticky, growth remains resilient, and the Fed uses the December meeting to deliver a final 25 basis point hike, validating the dot plot and pushing the market to a clear Yes resolution.
Most likely
The Fed skips October but remains live for December, and the final decision hinges on late-year inflation and labor data; that leaves Yes slightly favored, but not by as much as the current market price suggests.
Worst case
Incoming data soften enough that the Fed leaves rates unchanged through December, with officials arguing that September’s hike was sufficient and that additional tightening would be premature.
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