Next Fed rate hike?
Short Answer
Both the model and the market overwhelmingly agree that a Fed rate hike will occur before 2028, with only minor residual uncertainty.
1. Executive Verdict
- Since last update (~27d): Model probability for a rate hike surged +57.0pp, widening our +10.0pp edge over market predictions.
- The market led a -9.0pp drop in probability for a hike before 2027, widening our edge.
- Market-led activity saw a -12.0pp decrease in hike probability before 2028, further widening our edge.
- The 'Before July 2026' outcome resolved to 'no', dropping -1.0pp in the market.
- A rate hike before 2028 appears likely, per the FOMC's June 2026 projections.
- Nine FOMC members anticipate at least one rate hike by year-end 2026.
Who Wins and Why
| Outcome | Market | Model | Why |
|---|---|---|---|
| Before 2027 | 48.0% | 58.0% | FOMC's median end-2026 projection and member expectations provide strong evidence for a hike before 2027. |
| Before July 2027 | 69.0% | 71.2% | FOMC projections and member expectations indicate an increased likelihood of a rate hike before July 2027. |
| Before 2028 | 76.0% | 77.7% | FOMC's median projection and member expectations suggest an increased likelihood of a rate hike before 2028. |
Current Context
Markets project the Fed will hold rates in July 2026. The Federal Open Market Committee (FOMC) convenes on July 28–29, 2026, with the target federal funds rate currently at 3.5%–3.75% [^][^][^]. Prediction markets and futures traders overwhelmingly anticipate the Federal Reserve will maintain current interest rates at this meeting, with probabilities generally around 94% [^][^][^][^]. Specifically, FedWatch-based pricing indicates an 83.40% probability of holding the target range at 3.50%–3.75% by July 29, 2026, versus a 16.60% probability of a 25 basis point hike to 3.75%–4.00% [^][^][^][^][^]. Some platforms show probabilities for a July hike between 7% and 46%, reflecting source and volatility differences [^][^][^][^].
Federal Reserve officials maintain a hawkish, inflation-focused policy stance. Fed Chair Kevin Warsh and Governor Christopher Waller have emphasized the Federal Reserve's commitment to its 2% inflation target [^][^][^]. They indicated the recent rate hold is not a policy pivot, suggesting future policy remains data-dependent with asymmetric upside risk [^][^][^]. Recent commentary also shows a "growing chorus" of Fed officials pivoting hawkishly amid inflation risks, expecting the Fed to remain hawkish and favor higher-for-longer rates unless inflation expectations de-anchor [^][^][^][^][^][^]. Chair Warsh has pledged a "regime change" prioritizing inflation control [^][^][^][^][^][^].
Market pricing increasingly implies a rate hike by late 2026. While July odds are low, the market assigns a meaningful chance of hikes later in 2026 [^][^][^][^][^]. By September 16, 2026, pricing shifts, with 53.40% for 3.75%–4.00% and 9.10% for 4.00%–4.25%, suggesting a higher probability of at least one hike by then [^][^][^][^][^]. By October 28, 2026, the market-implied probabilities include 49.70% for 3.75%–4.00%, 19.30% for 4.00%–4.25%, and 2.10% for 4.25%–4.50% [^][^][^][^][^]. Expert opinions diverge on the future rate path; ABN AMRO and J.P. Morgan anticipate the Fed will remain on hold for the remainder of 2026, while Allianz Global Investors foresees further tightening, potentially 50 basis points, in the second half of the year due to persistent inflation concerns [^][^][^].
2. Market Behavior & Price Dynamics
Historical Price (Probability)
Outcome probability
Date
The market for a Fed rate hike before 2027 has traded in a wide, sideways range between 42.0% and 70.0%. Currently priced at 48.0%, the contract shows significant volatility and sensitivity to economic data. The most pronounced movements occurred on consecutive days. On July 13, the probability of a hike spiked 10 percentage points to 68.0% amid concerns over inflation re-acceleration, linked to rising oil prices and geopolitical tensions. This bullish sentiment was completely reversed the following day. On July 14, the price plummeted 19 percentage points after a Consumer Price Index (CPI) report showed a 0.4% monthly decline in headline inflation, sharply reducing the market-implied odds of a near-term hike.
Total volume of 238,081 contracts indicates substantial market participation. The price chart suggests resistance near the 70.0% level, which was sharply rejected, and support at the 42.0% low. The 50% mark acts as a key psychological level, with the market currently holding just below it. This price action reveals a market sentiment that is highly reactive and lacking a durable consensus. While the odds of a hike at the July 28-29 FOMC meeting are seen as low, this market reflects considerable uncertainty about the Fed's path through the end of 2026, with traders rapidly repricing odds based on incoming inflation data.
3. Significant Price Movements
Notable price changes detected in the chart, along with research into what caused each movement.
📉 July 14, 2026: 19.0pp drop
Price decreased from 68.0% to 49.0%
Outcome: Before 2027
What happened: The primary driver for the 19.0 percentage point drop in the "Next Fed rate hike? Before 2027" market on July 14, 2026, was the release of the Consumer Price Index (CPI) report. The report showed a 0.4% monthly decline in headline inflation, causing market-implied probabilities of a July Fed rate hike to drop significantly [^][^]. This led bond traders to abandon near-term rate hike bets and reinforced the consensus expectation for the Federal Reserve to hold interest rates steady at its upcoming meeting [^][^]. Social media activity was not identified as a primary driver or contributing accelerant.
📈 July 13, 2026: 10.0pp spike
Price increased from 58.0% to 68.0%
Outcome: Before 2027
What happened: The primary driver for the 10.0 percentage point spike in the "Next Fed rate hike? Before 2027" market on July 13, 2026, appears to be a heightened focus on the underlying risks of inflation re-acceleration, particularly due to rising oil prices and Middle East tensions [^][^][^][^]. While market expectations for an immediate July rate hike were cooling following the June CPI slowdown [^][^][^], hawkish Fed rhetoric continued to emphasize "no tolerance for persistently elevated inflation," maintaining a non-trivial hike risk later in 2026 if these inflation catalysts intensify [^][^][^]. Social media activity was irrelevant, as the provided research does not indicate any posts or viral narratives influencing this specific market movement.
4. Market Data
Contract Snapshot
This market resolves YES if the Federal Reserve implements another interest rate hike by December 31, 2026; otherwise, it resolves NO. The market opened on March 19, 2025, and will close either the day after a hike occurs or by December 31, 2026, at 11:59 PM EST if no hike happens, with payouts expected one hour after closing and outcomes verified by the Federal Reserve. Trading is prohibited for employees of Source Agencies and those with material, non-public information.
Available Contracts
Market options and current pricing
| Outcome bucket | Yes (price) | No (price) | Last trade probability |
|---|---|---|---|
| Before 2027 | $0.49 | $0.52 | 48% |
| Before July 2027 | $0.69 | $0.33 | 69% |
| Before 2028 | $0.81 | $0.21 | 76% |
Market Discussion
The visible discussion is dominated by traders confidently betting against a Federal Reserve rate hike before 2027 and even 2028. Arguments for "No" positions include an explicit belief that the Fed Chair lacks the resolve for another hike, alongside general expressions of strong conviction. While the market probabilities still indicate a significant chance of a hike (e.g., 48% before 2027), the vocal sentiment among participants strongly favors no further increases, a position reinforced by recent decreases in "Yes" probabilities across all discussed timeframes.
5. What specific inflation and employment data points in H2 2026 could compel the FOMC to implement a rate hike?
| PCE Inflation Target for Hike | Above 2.00% (no meaningful cooling) [^][^][^][^] |
|---|---|
| FOMC Members Anticipating Hike (mid-2026) | Nine [^][^][^][^] |
| Fed 2026 Unemployment Projection | 4.3% [^][^][^][^][^][^] |
Persistent inflation above target would compel an FOMC rate hike. The Federal Open Market Committee (FOMC) would likely implement a rate hike in the second half of 2026 if it observes persistently high inflation. This would specifically involve PCE inflation remaining above 2.00% without meaningful cooling, and core inflation failing to trend toward the 2% target, which implies monthly prints around 0.18% or lower. A single hot reading would likely be insufficient; instead, several months of inflation readings that are sticky, re-accelerating, or moderately exceeding 2.00% would be required [^][^][^][^][^][^][^][^][^][^]. Additionally, signals such as de-anchoring of inflation expectations or broadening price pressures would indicate a need for tightening [^][^][^][^][^].
Labor market tightness coupled with inflation would also compel a hike. Regarding employment, a rate hike would be compelled by stable or overheating labor market conditions. These conditions would be indicated by job gains keeping pace with the workforce and unemployment remaining low or near maximum employment. Tighter-than-expected employment conditions, such as a materially tighter unemployment outcome than the Fed’s 2026 projection of 4.3%, would represent a notable deviation from expectations. The Fed would require a pattern of continued labor tightness alongside sticky inflation to trigger a rate hike [^][^][^][^][^][^][^].
6. How do recent statements from Fed Chair Warsh and Governor Waller align with the market's expectation of a rate hold in July 2026?
| Probability of July 2026 Rate Hold (July 15) | 83.4% [^][^] |
|---|---|
| Probability of July 2026 Rate Hold (Previous Day) | 58.3% [^][^] |
| Fed Chair Warsh Testimony Date | July 14, 2026 [^][^][^][^] |
Recent Fed communications align with market's July 2026 interest rate hold. Fed Chair Kevin Warsh testified before Congress on July 14, 2026, emphasizing a "zero-tolerance" stance on inflation and reaffirming price stability as the Federal Reserve's primary objective [^][^][^][^]. While his hawkish rhetoric typically exerts upward pressure on rates, Warsh refrained from providing specific forward guidance for the upcoming July 28-29 meeting [^][^][^]. These statements, combined with Governor Waller's remarks and new inflation data, are consistent with the market's expectation of an interest rate hold [^][^][^][^].
Governor Waller's conditional stance shifted following a cooling inflation report. On July 13, 2026, Governor Christopher Waller had stated that the Fed would need to consider tightening policy in the "near term" if future inflation data, specifically the June CPI, showed persistent increases [^][^][^][^]. However, a significant deceleration was subsequently reported in the June CPI release [^][^].
Cooling inflation drastically shifted market expectations towards a July hold. Following the improved inflation data, market participants substantially revised their projections [^][^]. By July 15, 2026, the CME FedWatch Tool indicated an 83.4% probability of an interest rate hold at the July 28-29 meeting, which was a significant increase from 58.3% recorded the day before [^][^]. While Chair Warsh's hawkish stance on inflation continues to exert upward pressure on rates, the recent cooling inflation data appears to provide the Fed with enough flexibility to favor a rate hold, aligning with this notable shift in market expectations [^][^][^].
7. How do the H2 2026 federal funds rate forecasts from J.P. Morgan and Allianz Global Investors compare?
| J.P. Morgan Fed Rate Outlook 2026 | No rate hikes for remainder of 2026 (J.P. Morgan Global Research) [^] |
|---|---|
| Allianz Global Investors Fed Rate Outlook H2 2026 | 50 basis points of rate hikes (Allianz Global Investors) [^][^] |
| Probability of July 2026 Rate Hike | Approximately 36% (Kalshi prediction markets) [^] |
J.P. Morgan expects current federal funds rates to hold through 2026. J.P. Morgan Global Research, as of July 2026, projects that the Federal Reserve will maintain its current interest rates for the remainder of 2026, anticipating no further rate hikes within this period. Their outlook suggests the next potential 25 basis point increase would occur in September 2027 [^].
Allianz Global Investors anticipates two rate hikes in late 2026. In contrast, Allianz Global Investors revised their forecast in July 2026, expecting a total of 50 basis points in rate hikes during the second half of 2026, specifically anticipating increases in September and December [^][^]. This divergence is further highlighted by prediction markets like Kalshi, which, as of mid-July 2026, indicated an increasing probability of approximately 36% for a Fed rate hike at the July 2026 FOMC meeting [^][^][^].
8. What is the historical accuracy of the CME FedWatch Tool in predicting FOMC rate decisions one month prior to an announcement?
| Accuracy 30 days prior | 84% to 88.4% [^][^][^] |
|---|---|
| Accuracy 60 days prior | 76.5% [^] |
| Accuracy 90 days prior | 69.3% [^] |
The CME FedWatch Tool demonstrates high accuracy for near-term predictions. It exhibits an accuracy of approximately 84% to 88.4% when forecasting FOMC rate decisions 30 days before a scheduled announcement [^][^][^]. However, this predictive accuracy diminishes as the time horizon lengthens, decreasing to about 76.5% at 60 days and further dropping to roughly 69.3% at 90 days prior to a meeting [^].
The tool reflects market sentiment, subject to inherent volatility. Operating on futures market pricing, the CME FedWatch Tool mirrors real-time market sentiment rather than providing a static forecast [^][^]. Its accuracy is therefore influenced by the inherent volatility and speculative nature of financial markets [^][^]. While it serves as a standard market gauge, comparative studies, such as those employing superforecasting, have suggested that the tool's Brier score accuracy can be outperformed, particularly during times of significant policy uncertainty [^].
9. Which FOMC voting members have signaled the most hawkish stances leading into the September 2026 meeting?
| No Change Odds (Sep 2026 FOMC) | 56% to 62% [^][^][^][^] |
|---|---|
| 25 Basis Point Hike Probability (Sep 2026 FOMC) | 34% to 42% [^][^][^][^] |
| Current Federal Funds Rate | 3.50%–3.75% [^][^][^][^] |
Two key FOMC members signal hawkish stances for September 2026. Federal Reserve Governor Christopher Waller and new Fed Chair Kevin Warsh have communicated the most hawkish positions leading into the September 2026 meeting. Governor Waller has explicitly stated that interest rate increases will need consideration if core inflation data does not demonstrate sustained improvement [^][^][^]. Chairman Warsh has adopted a hawkish stance emphasizing price stability, critiquing the Federal Reserve's 2020 average inflation targeting framework, and expressing a clear resolve not to tolerate persistently high inflation [^][^]. Despite his strong focus on inflation, Chairman Warsh has remained cautious about providing specific forward guidance regarding near-term rate hikes [^].
Prediction markets currently anticipate no change in rates for the upcoming meeting. Despite these hawkish signals from prominent Fed officials, prediction markets for the September 16, 2026 FOMC meeting indicate that maintaining the current federal funds rate, which stands at 3.50%–3.75%, remains the most likely outcome. The odds for "No change" are presently estimated to be between 56% and 62% [^][^][^][^]. Conversely, the probability of a 25 basis point hike is estimated to range from 34% to 42% [^][^][^][^].
10. What Could Change the Odds
Key Catalysts
Prediction markets, as of July 15, 2026, assign approximately 48% to 50% probability to a Fed rate hike occurring before the end of 2026 [^] [^] . This outlook reflects a divided FOMC following a hawkish shift in the June 2026 projections [^][^]. Higher confidence exists for a rate hike by mid-2027 (approx. 71% probability) and by the end of 2027 (approx. 83% probability) [^].
Market and analyst expectations for a 2026 hike are driven by dual scenarios: one where inflation cools, allowing for a pause or cuts, and another where "sticky" inflation, due to energy shocks, tariffs, or AI-related demand, necessitates "some firming" (25 bps hikes) in late 2026 [^] [^] . The June 2026 FOMC Summary of Economic Projections set the median federal funds rate at 3.8% for end-of-year 2026, with downward paths projected to 3.6% in 2027 and 3.4% in 2028 [^][^][^].
Key Dates & Catalysts
- Expiration: July 01, 2026
- Closes: January 01, 2028
11. Decision-Flipping Events
- Trigger: Prediction markets, as of July 15, 2026, assign approximately 48% to 50% probability to a Fed rate hike occurring before the end of 2026 [^] [^] .
- Trigger: This outlook reflects a divided FOMC following a hawkish shift in the June 2026 projections [^] [^] .
- Trigger: Higher confidence exists for a rate hike by mid-2027 (approx.
- Trigger: 71% probability) and by the end of 2027 (approx.
13. Related News
Last updated: July 15, 2026, 12:30 UTC
Fed Rate Hike Bets for 2026 Fall After Warsh Testimony
Implied odds for a Federal Reserve interest rate hike before 2027 fell sharply during Tuesday's session, following congressional testimony from Fed Chair Kevin Warsh. In a significant repricing on the...
Last updated: July 15, 2026, 12:30 UTC
Fed's Hawkish Dot Plot Pushes 2026 Rate Hike Odds Above 50%
The Federal Reserve's sharply hawkish pivot at its June 17 meeting sent shockwaves through prediction markets, with traders rapidly pricing in a greater likelihood of an interest rate hike before the ...
Last updated: July 15, 2026, 12:30 UTC
Fed Hike Market Prices Hawkish Shift, Pulls Timeline Forward to 2027
The prediction market for the next Federal Reserve rate hike has undergone a significant repricing, indicating a more hawkish outlook among traders. In a sharp shift, the probability of a hike occurri...
Last updated: July 15, 2026, 12:30 UTC
Probability Shifts in Fed Hike Timeline Signal Growing Odds of Delay to After 2027 Amid Cooling Growth and Volatile Labor Market
The probability distribution for the Fed’s next rate hike has shifted decisively toward later timing, with the bulk of market consensus now pricing in an inter-meeting pause beyond 2027. The dramatic ...
14. Historical Resolutions
Historical Resolutions: 1 markets in this series
Outcomes: 0 resolved YES, 1 resolved NO
Recent resolutions:
- FEDHIKE-26JUN30: NO (Jul 01, 2026)
