Markets expect series of Fed rate hikes after first step

Investors are almost certain that the US Federal Reserve will raise interest rates next week for the first time in three years. Attention is therefore shifting quickly to what comes next. Because a single 25 basis point increase, according to insiders, has little effect on inflation, markets see the upcoming move as the start of a longer series. At present, at least three increases in total are expected by June next year.

In short:

• The Fed is expected to raise rates next week for the first time in three years.
• A single 25 basis point increase is seen as insufficient to curb inflation.
• Markets now price in at least three increases by June 2027, compared with two previously.

A single increase solves little, insiders say

Within the Fed, almost no one believes that a single small rate move will appreciably slow inflation. That makes the forthcoming increase telling: if the central bank does take that step, it signals that rates are currently too low and that further action will follow.

Former Fed Vice Chair Richard Clarida says further increases are inevitable once the first takes place. According to earlier reporting, US inflation figures play a decisive role in next week’s rate decision.

Market expectations rise further

Investors previously anticipated two rate increases, but that number has now been revised to at least three by mid-2027. That is according to reporting by The Wall Street Journal.

Fed Chair Kevin Warsh generally avoids commenting on the future rate path. That makes it difficult for him to steer market expectations, now that investors are already pricing in multiple increases. Earlier this week, key inflation data was also released, adding further pressure on the central bank.