Will the Fed increase interest rates by 25 bps after the December 2026 meeting?

TL;DR

The saved forecast is Yes: 63.5% and No: 36.5%. Yes means that the FOMC raises the upper bound of the target federal-funds range by exactly 25 basis points at its December 8–9, 2026 meeting. The decisive issue is not whether policy tightens by year-end, but whether the next increase occurs in December rather than at the October 27–28 meeting (FOMC calendar).

Context

As of the October 20 forecast date, the target range was 3.75%–4.00%. The September FOMC had raised the range by 25 basis points, and the December contract measures the change in the upper bound against the level immediately before the December meeting. An ordinary quarter-point increase at that meeting would therefore take the upper bound from 4.00% to 4.25% and resolve Yes under the stated rule.

The Fed has two scheduled decisions left in 2026: October 27–28 and December 8–9 (FOMC calendar). This makes the case more nuanced than a generic forecast of year-end policy. The same evidence that supports another increase can also support an October hike followed by a December pause.

Evidence

The historical backbone argues against treating a December hike as routine. In the 17 December final-meeting observations from 2009 through 2025, there were four exact 25 bp hikes, five hikes of any size, 10 holds, and two cuts. That is a weak unconditional reference class: December decisions often occur outside a tightening phase. Still, it establishes that the calendar alone does not make a quarter-point December increase the default (Federal Funds Target Range Upper Limit).

The current policy setting differs from that average. The Fed raised rates in September after holds in March and June. The September action makes a continuation more plausible than it would be in a long-standing hold regime. The official September statement provides the direct record of that latest decision (FOMC statement).

The strongest forward-looking evidence is the September Summary of Economic Projections. Its median year-end 2026 federal-funds midpoint was 4.125%, while the current target-range midpoint was 3.875%. That maps to one further conventional 25 bp increase before year-end. Twelve of 18 participants projected a 4.125% midpoint; four projected 4.375%; and two projected 3.875%. In other words, 16 participants projected a year-end range above the one prevailing on October 20, while the modal outcome was exactly one additional increase (September projections).

The projections also paired that policy path with 2026 median forecasts of 2.3% real GDP growth, 4.1% unemployment, 3.7% headline PCE inflation, and 3.4% core PCE inflation (September projections). Those figures describe an economy expected to grow with inflation well above the Fed’s 2% objective. The September minutes reinforce the signal: most participants judged another increase likely appropriate by year-end (September minutes).

Inflation data support the case for further restraint, though they do not show a clean broad-based acceleration. The September CPI report showed headline CPI up 0.6% month over month and 3.7% year over year. Core CPI rose 0.3% in September after the same increase in August. Gasoline rose 9.1% and accounted for more than half of the monthly headline gain, which means the headline surge cannot be read as wholly persistent core inflation (September CPI release).

The Fed’s preferred PCE measures were less acute but remained too high for comfort. The latest official reading available was August: all-items PCE inflation was 3.4% year over year and core PCE inflation was 3.0% year over year. The monthly changes were 0.3% for all-items PCE and 0.2% for core PCE (BEA personal income and outlays release). September PPI then rose 1.3% month over month. Taken together, the data show an inflation problem that has not been solved, but they leave open the possibility that energy was an outsized driver of the latest headline deterioration (September CPI release).

The available history gives the same split. Headline CPI year-over-year inflation was 3.30386% in July, 3.35302% in August, and 3.71725% in September. Core PCE was 2.85134% year over year in August 2025 and 3.00760% in August 2026 (CPI series; core PCE series). Cleveland Fed nowcasts as of October 20 put October headline CPI at 3.77% year over year and core PCE at 3.13%, but these are model estimates rather than official releases (Cleveland Fed inflation nowcasting).

Underlying inflation measures offer a counterweight to the headline figures. The Cleveland Fed median CPI measure was 2.9660% year over year in January 2026 and 2.6104% in September, while the 16% trimmed-mean CPI was 2.6649% in September. These readings remain above target, but they are materially below headline CPI and fit a case for waiting for confirmation before another increase (Cleveland Fed median CPI data).

Labor-market evidence is also divided. The unemployment rate was 4.2% in September, close to the 4.1% September projection for the fourth quarter. Initial claims give the more timely hawkish signal: the four-week moving average was 224,500 for the week ending June 20 and 198,500 for the week ending October 10. Low and falling claims argue against imminent labor-market deterioration (initial claims series).

Payroll growth points the other way. Monthly nonfarm payroll changes were negative 10,000 in July, positive 133,000 in August, and positive 29,000 in September. From October 2025 through September 2026, the average monthly change was 41,300 and the median was 36,000. Wage growth also slowed to 3.02452% year over year in September from roughly 3.93% in November 2025. That is weak momentum for an economy supposedly overheating, even though the low claims data make a rapid deterioration less likely (payroll employment series; average hourly earnings series).

Growth and credit do not point to a clear recession baseline. The September projections anticipated 2.3% real GDP growth in 2026. The October Beige Book described consumer spending as little changed overall, with lower-income consumers more cautious and retail sales flat to softer in many districts. It also found robust price growth in three districts, moderate growth in eight, and reports of fuel, tariff, insurance, and other input-cost pressures (September projections; October Beige Book).

Credit evidence likewise suggests restraint without a clear credit crunch. The July Senior Loan Officer Opinion Survey reported broadly unchanged commercial-and-industrial loan standards, stronger demand from larger firms, and weaker demand for residential mortgages and auto loans (July SLOOS). Longer Treasury yields were also already above the 3.88% effective federal-funds rate, which may reduce the need for immediate additional policy tightening. The data provided show a 4.74% two-year Treasury yield and a 5.09% ten-year yield on October 16; the direction and level of Treasury rates should not be mechanically converted into a meeting outcome (Treasury yield data).

What's non-obvious

The obvious read is that the September projections and hot CPI make a December hike highly likely. The less obvious point is that the projections chiefly support one more increase by year-end, while the calendar provides two opportunities to make it. The October 27–28 meeting is only shortly before the forecast date. If the Fed acts then, a December hold is fully consistent with the modal one-hike projection.

The reverse point also matters. Weak September payrolls do not by themselves establish a pause case. Claims remained low, unemployment was near the Fed’s own projected level, inflation stayed above target, and the September minutes recorded broad support for one more increase. I read this combination as favoring a December hike over a hold while preserving a substantial No probability because of October preemption and the possibility that core inflation continues to cool.

Uncertainties

The greatest uncertainty is the data flow between October 20 and December 9. The October and November employment reports, October CPI, official PCE releases, and weekly claims can change the balance. Two contained core-inflation reports, continued weak payroll growth, a sustained rise in claims, or financial stress would favor a December hold. Broad core-price pressure and a payroll rebound alongside still-low claims would support the saved Yes outcome.

Several evidence limits remain. The September projection materials are conditional individual assessments, not a commitment on either the October or December date. Inflation nowcasts and qualitative Beige Book reports are useful early signals, but they are not substitutes for subsequent official price releases. The inputs contain no verified future FOMC guidance that resolves the timing choice.

The resolution is also narrow. It requires an exactly 25 bp change in the upper bound at the December meeting, not simply tighter policy by the end of 2026. A hold, a cut, or a different-sized change would resolve No under the stated market structure. That timing and bracket specificity is why the forecast remains Yes: 63.5% and No: 36.5%, despite evidence that broadly favors further year-end tightening.