Fed Hikes Expectations Revised Downwards by Rabobank

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

The team believes that the Fed will stop at a higher neutral rate than their current projection. They are forecasting fewer rate hikes than the markets expect, with only one more rate hike before the Fed remains on hold through 2027. In fact, they anticipate one rate cut per year in 2028-2030.

This revised outlook is based on recent FOMC speeches, which highlighted the Committee's increased risk aversion to unanchored inflation expectations and their willingness to accept demand destruction in sectors unrelated to energy. The team notes that this shift in Fed policy will have significant implications for the markets, particularly with regards to interest rates.

Rabobank's updated forecast suggests a more cautious approach from the Fed, which could impact market expectations and pricing. As the team emphasizes, their revised outlook is based on recent speeches by FOMC participants, and they continue to monitor developments closely.