Are There Rising Interest Rates on the Horizon?

Although President Trump has been hectoring the Fed to lower the federal funds rate for quite some time, the Fed has made only modest cuts since his inauguration in 2025—just 75bp in cuts, all made at the end of last year. Still, entering 2026, the Fed and markets expected further rate reductions this year, albeit only slight ones (chart below is as of Dec 31, 2025):

Unfortunately, inflation has revived, particularly since the onset of the Iran War. The personal consumption expenditures price index, the Fed’s preferred inflation gauge, shows year-over-year increases of over 3%, even after stripping away more volatile food and energy:

The 12-month headline inflation rate of 3.8% was the highest since May of 2023, while the core inflation rate of 3.3% was the highest since November of 2023. Inflation expectations have also risen, according to the University of Michigan’s Survey of Consumers. For the next year inflation expectations are at 4.8%, while for the long term inflation expectations have climbed to 3.9%. Amidst these inflationary concerns, it is no surprise that markets are no longer expecting rate cuts in 2026:

As of this writing markets assign a 0% probability of lower rates by year’s end. However, the prospect of rate hikes doesn’t appear imposing at the moment either—there’s less than a 50% chance of an increase in the federal funds rate by the close of 2026, and in the event rates do increase, they are most likely to climb only 25 basis points.

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This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or investment strategy. This material has been prepared for informational purposes only, and is not intended to be or interpreted as a recommendation. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice.