2 hrs ago
Wall Street Turns Hawkish As Banks Forecast Fed Rate Hikes
Many big banks now think the Federal Reserve may raise interest rates again.
Markets expect a small, 25-basis-point increase at the current meeting.
This would be the Fed’s first rate hike since July 2023.
Banks also expect more increases during 2026.
Morgan Stanley and JPMorgan predict two hikes.
Bank of America predicts three hikes totaling 75 basis points.
Higher-than-expected inflation and oil prices above $100 a barrel are key reasons.
Banks disagree about how many more hikes will happen after September.
Markets price in about a 93% probability of a 25-basis-point Fed hike at the ongoing FOMC meeting.
Goldman Sachs, JPMorgan, Morgan Stanley and other major institutions expect at least one rate hike in 2026.
Morgan Stanley and JPMorgan forecast two 25-basis-point hikes, in September and December.
Bank of America projects three 25-basis-point increases in September, October and December.
Forecasts range from 25 to 75 basis points as inflation and oil prices remain elevated.
- Who
- The Federal Reserve, Wall Street banks and major brokerages including Goldman Sachs, JPMorgan, Morgan Stanley, HSBC, Deutsche Bank and Bank of America.
- What
- Markets and banks are forecasting a Federal Reserve rate hike at the current meeting and additional tightening in 2026.
- Where
- The United States, with policy decisions made through the Federal Open Market Committee.
- When
- The expected current-meeting hike would be the first since July 2023; forecasts cover 2026, especially September through December.
- Why
- Stronger-than-expected inflation, oil prices above $100 a barrel and renewed tension in West Asia have increased expectations of further tightening.
Limited tightening
More aggressive tightening
Number of 2026 rate hikes
Limited tightening
Some forecasts anticipate only one 25-basis-point increase through December.
More aggressive tightening
Bank of America expects three 25-basis-point increases, while Morgan Stanley and JPMorgan expect two.
Policy outlook after September
Limited tightening
The wide forecast range reflects the possibility that the Federal Reserve may make only a single additional increase.
More aggressive tightening
Deutsche Bank expects another hike after September, and Bank of America projects increases in September, October and December.
Key facts
- Expected current-meeting move
- A 25-basis-point Federal Reserve rate hike
- Market probability
- About 93% probability of a quarter-point hike
- First hike since
- July 2023
- 2026 forecast range
- One 25-basis-point increase to 75 basis points of total tightening
- Morgan Stanley forecast
- Two hikes, in September and December
- JPMorgan forecast
- Two hikes in 2026
- Bank of America forecast
- Three 25-basis-point hikes, in September, October and December
- Inflation and oil backdrop
- Inflation was stronger than expected, while oil prices exceeded $100 a barrel
Sources
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