Fed Adds Rate Hike in December 2026 as Risk Aversion Increases

Rabobank's RaboResearch Global Economics & Markets has updated its United States Federal Reserve (Fed) outlook, adding a rate hike in December 2026 to their forecast. This change is based on recent speeches by FOMC participants, who have shown increased risk aversion to unanchored inflation expectations and a greater tolerance for demand destruction outside the energy sector.

The team believes this shift in Fed policy will result in one more rate hike before the end of 2026, bringing the total number of hikes in their forecast to two. However, they still expect fewer rate hikes than what is currently priced in by the markets, which anticipate a new hiking cycle of 3-4 additional rate hikes.

Looking ahead, Rabobank now expects the Fed to remain on hold through 2027, followed by one rate cut per year in 2028 and 2030. They also believe that the Fed will stop at a higher neutral rate than their current projection.