The Federal Reserve's first rate hike in more than three years is hardly in doubt. Traders assign a 93% probability to a quarter-point increase Wednesday, lifting the federal funds rate to 3.75%-4.00%.
Ask economists what happens next, however, and three different tightening cycles emerge.
An MNI compilation of analyst forecasts shows a median call for 50 basis points of increases. That means one hike Wednesday and another later in the year.
Yet forecasts range from no increase at all to three quarter-point hikes.
That gap could decide whether Treasury yields continue climbing or rate-sensitive stocks find some relief.
Ahead of the Fed decision, the S&P 500 - tracked by the SPDR S&P 500 ETF Trust
The Spread Runs From Zero To Three
The Fed's target range has sat at 3.50% to 3.75% since December 2025. Here is where each camp thinks it lands.
Hikes Still Expected | Forecasters | Implied Target Range
- Three (75 bps) | ANZ, Bank of America, RBC, Deutsche Bank, Société Générale, TD, BNY Mellon | 4.25%-4.50%
- Two (50 bps) | JPMorgan, UBS, Barclays, Nomura, Wells Fargo, BMO, MUFG, UniCredit, Westpac | 4.00%-4.25%
- One (25 bps) | Goldman Sachs, Citi, ING, NatWest, Rabobank, SEB, Swedbank | 3.75%-4.00%
- None | Jefferies | 3.50%-3.75%
The Faster Cycle: Three Hikes
Seven institutions expect 75 basis points of tightening.
Bank of America, ANZ and RBC see consecutive increases in September, October and December. Deutsche Bank expects the third move in March, while Société Générale pushes it to May.
The destination is similar. The difference is speed.
"Markets are pricing close to 100bp of hikes in total, over the next year or so," Bank of America economist Aditya Bhave said.
"We remain comfortable with our view that the Fed will raise rates a bit less (75bp), but much faster (by end-2026)," he added.
Bhave sees an advantage in moving quickly. Faster hikes could prevent inflation from becoming entrenched and reassure the Treasury market that the Fed remains in control.
That could ultimately reduce the total amount of tightening required.
One Hike And Done
Seven institutions expect only Wednesday's quarter-point increase.
ING and Swedbank see rates stopping there. Citi, Goldman Sachs, NatWest, Rabobank and SEB expect the Fed to begin cutting again during 2027.
Jefferies is even more dovish. It expects no remaining hikes and a quarter-point cut in December.
Oxford Economics also expects the Fed to hold Wednesday.
"Our forecast is more dovish than current market pricing, which suggests a hike is overwhelmingly likely," Chief U.S. economist Michael Pearce said.
Pearce said tighter financial conditions are already doing part of the Fed's work.
Higher Treasury yields and borrowing costs can slow demand without another rate increase.
The Market Thinks They Are All Too Cautious
The median forecast places the policy rate near 4.1% at the end of 2026, 3.9% in 2027 and 3.4% in 2028. The longer-run estimate remains 3.1%.
In other words, Wall Street sees a rate hump, not an endless staircase.
Fed funds futures currently imply a benchmark rate near 4.2% by December and roughly 4.6% by September 2027.
Traders are betting on a full percentage point of tightening. The economists surveyed expect half of that.
One of the two is going to be badly wrong, and Wednesday's dot plot is the first piece of evidence either side gets.
