Fed Rate Hike Odds Hit 92.3 Percent Ahead of Wednesday Decision
Market pricing indicates a 25-basis-point increase is near-certain, with traders expecting four total hikes over the next year.
The probability of a 25-basis-point Federal Reserve rate hike stood at 92.3% as of Monday afternoon. This figure rose from 59.4% one week earlier and 33.1% one month ago. Traders are pricing in four separate 25-basis-point increases over the next 12 months. These moves would lift the federal funds rate from its current 3.50% to 3.75% range to 4.50% to 4.75%. The shift reflects stronger-than-expected jobs data and persistently high inflation readings.
Sam Williamson, senior economist at First American, stated that the case for holding rates steady is weakening. August labor and inflation data suggest prices are still rising too quickly. Job growth remains strong while unemployment stays low. This combination gives policymakers room to tighten policy further. Williamson noted that the decision may be a close call, potentially drawing dissent from less hawkish officials. The bond market has already tightened financial conditions by pushing long-term yields higher. This market-driven tightening reduces the need for immediate policy action but does not eliminate it.
Political Pressure Fails to Shift Consensus
President Trump recently threatened to halt trade with top partners if the Fed does not cut rates. He reiterated on Sunday that the US should have the world’s lowest rates. Williamson said this political pressure is unlikely to alter the central bank’s decision. The Federal Open Market Committee relies on consensus and data-driven credibility. If markets perceive policy as politically driven, inflation expectations could rise. This would increase policy-risk premiums and push Treasury yields and mortgage rates higher.
Mortgage Rates Remain Elevated Through 2026
Mortgage rates have moved closer to 7% in recent weeks. Williamson expects rates to zig-zag within the mid-6% to low-7% range for the rest of 2026. He does not anticipate a dramatic shift in either direction. Higher rates delay housing activity but do not stop it. The source GN auto markets/housing: mortgage rates highlights this persistent elevation. Borrowers should plan for continued cost pressure in the housing market. The Fed’s decision on Wednesday will set the tone for the remainder of the year.
