Unexpected 25bp Rate Hike and Future Odds
Key Questions
Did the Fed raise rates in June 2026?
No, the FOMC held rates steady at 3.50-3.75% as widely expected. However, the dot plot showed nine officials now favoring a rate hike by year-end, shifting from the prior no-hike consensus.
What economic data supported the hawkish Fed stance?
May CPI came in at 4.2% headline with core MoM at 0.2%, while retail sales rose a strong 0.9%. These figures, combined with upward revisions to inflation forecasts, reinforced expectations of tighter policy.
What are market odds for a 2026 rate hike?
Polymarket currently prices the probability of a 2026 hike at 62%. BNP Paribas forecasts three hikes beginning in December 2026, while UBS sees no cuts through the end of 2026.
Why are some analysts skeptical that hikes will actually occur?
High debt servicing costs and concerns about credit market stability lead some traders to doubt aggressive tightening. Contrarian voices such as Art Laffer and Steve Forbes have also warned against or called for cuts instead.
How have SEP projections changed under the new Fed chair?
Updated projections show a higher rate path for 2027-2028, with core PCE inflation revised upward. GDP and unemployment forecasts were revised slightly lower.
Fed held rates at 3.50-3.75% in June as expected, but the dot plot shows 9 officials favor a hike by year-end, up from zero cuts consensus. May CPI at 4.2% headline (core MoM 0.2%) and strong retail sales (0.9%) support hawkish stance. Polymarket odds for 2026 hike at 62%. BNP Paribas expects three rate hikes starting December 2026. UBS expects no cuts through 2026. Contrarian voices: Art Laffer warns hike is a mistake; Steve Forbes urges a cut. DiMartino Booth warns of credit market risks. Some traders doubt actual hikes due to high debt costs, adding skepticism. 2Y yield hit one-year high post-FOMC. SEP projections show higher rate path for 2027-2028, GDP and unemployment revised down. DBS reports September hike probability at 54.6%. New: PCE spiked to 4.1% YoY, but core PCE didn't accelerate month-over-month, giving the Fed cover to wait; September hike odds ~80%. ABN AMRO argues the market overreacted and still expects cuts by year-end. Gold selloff confirms hawkish repricing, with September hike probability at 69% (up from 29% in one week).