Is the Fed Really Going to Hike Rates? Two-Thirds of Economists See High Probability

According to the latest Reuters survey, the U.S. Federal Reserve (Fed) may keep interest rates unchanged for the remainder of 2026 to address persistent high inflation that has lasted over five years. However, among economists who answered an additional question, about two-thirds believe the likelihood of a Fed rate hike this year is 'high'—a clear reversal from last month, when a majority believed the probability was low.

With the Middle East conflict escalating again, oil prices have recently surged nearly 25%, raising market concerns that last month’s cooling inflation may have been only temporary. Current price increases are still about twice the 2% target set by the Fed, and rate markets have begun pricing in the possibility of two rate hikes by the end of March next year.

Fed Chair Kevin Warsh reiterated last week that bringing inflation down to the 2% target remains the top policy priority. The Fed has failed to achieve this goal for over five years, but Warsh has not yet specified what measures will be taken. Some officials have stated that further rate hikes cannot be ruled out if inflation remains elevated, but most surveyed economists have not yet included rate hikes in their baseline forecasts.

Over 70% of economists expect rates to remain unchanged this year

The Reuters survey, conducted from July 17 to 21, found that all 104 economists expect the Fed to maintain the federal funds rate target range at 3.50% to 3.75% during its meeting on July 28–29.

Of these, 78 economists—about three-quarters—predict that rates will remain unchanged through year-end. The number forecasting no change for the full year matches the end-of-June survey, but there has been a clear shift in expectations for policy changes: most now predict at least one rate hike this year, while only six still expect a rate cut. Rate cuts were until recently the dominant market view.

Jeremy Schwartz, Senior U.S. Economist at Nomura, said some believe Chair Warsh might quickly tighten monetary policy early in his term. However, Nomura assesses that he is more likely to buy time by signaling the Fed’s commitment to fighting inflation, hoping in practice to avoid being forced to hike rates.

Schwartz noted that many of the issues Warsh has recently focused on appear more like efforts to justify maintaining rates steady, rather than paving the way for an immediate hike.

Median survey forecasts suggest Fed rates will not rise again until 2028, even though the Fed’s preferred Personal Consumption Expenditures (PCE) price index may remain above the 2% target during that period. The May PCE annual growth rate was most recently measured at 4.1%.

Rate hike probability assessment reverses—Inflation pressure is key

Although the baseline forecast remains unchanged rates, economists’ vigilance toward rate hike risks is rising rapidly. Among 67 respondents who answered an additional question, 44—about 66%—believe the likelihood of a rate hike this year is high. In contrast, among 86 respondents to the same question last month, 47 believed the probability was low.

Jan Groen, Chief U.S. Economist at Societe Generale, said that if the Fed is truly serious about returning inflation to 2%, the timing for a rate hike is approaching, although he personally still forecasts rates unchanged this year.

He pointed out that a large group within the Fed still believes that maintaining current rates for an extended period will gradually reduce economic spending and ultimately bring inflation back to 2%. However, this strategy has been in place for at least two to three years and has largely failed so far.

Rising living costs are also a political vulnerability for President Trump ahead of the November midterm elections. A major reason for Trump’s 2024 re-election was his promise to curb inflation and even directly lower consumer prices.

The survey also forecasts that the U.S. unemployment rate will remain around 4.2%, with average economic growth of about 2%. This suggests that the labor market and economic activity may not deteriorate significantly, and even if inflation forces the Fed to act, these factors may not be sufficient to prevent a rate hike.

Future policy direction will also depend on several new task forces established by Chair Warsh, whose members include prominent economists, corporate executives, and central bank officials. JPMorgan economists believe the communications and balance sheet teams are most likely to deliver actionable outcomes in the short term, while the inflation task force could have the deepest impact on the execution of monetary policy in the medium term.