Fed Hawks Keep Rate Hike on Table for Late-2026

The Federal Reserve's internal divisions are keeping alive the risk of a late-2026 interest rate hike, according to Societe Generale. Despite market expectations of imminent easing, a faction within the Fed remains concerned about persistent inflationary pressures and the resilience of the U.S. economy.

These hawkish policymakers argue that keeping rates elevated for longer is necessary to ensure inflation returns durably to the 2% target, even if it means delaying rate cuts. Recent comments from several Fed officials have emphasized the need to remain data-dependent and cautious, warning against premature policy loosening.

Societe Generale notes that while a hike is not the base case, the probability is higher than markets currently assign. The bank's strategists estimate a meaningful chance that the Fed could raise rates by 25 basis points in late 2026 if inflation proves sticky or if economic data remains surprisingly strong.