Fed Rate Hike Odds Soar to 90% by Year-End Amid Inflation Worries

The Federal Reserve is facing a high probability of raising interest rates by year-end, according to the CME FedWatch Tool. The tool shows a 90% chance of at least one rate hike before the end of 2026, due to persistent inflation data that has reshaped market expectations around monetary policy.

However, BMO Capital Markets senior economist Jennifer Lee is not convinced that the Fed will raise rates. She has consistently argued that the Fed will hold rates steady through 2026, with any cuts potentially coming in the fourth quarter of 2027 at the earliest.

The June 2026 FOMC dot-plot showed a divided committee, with nine out of 18 members indicating they expect at least one rate increase by year-end. This internal debate has contributed to market anxiety and uncertainty around future interest rates.

For bond markets, if the predicted three-hike scenario plays out, the yield curve will need to reprice significantly. Investors holding longer-duration fixed income are essentially betting that the Fed will blink before tightening too much.