Fed Rate-Hike Odds Jump to 96% for Early 2027, Pressuring Borrowing Costs
The odds that the Federal Reserve raises interest rates again by January 2027 have jumped to 96%, according to Motley Fool writer Sean Williams, citing data from the CME Group's FedWatch Tool.
That marks a sharp climb from a month earlier, when futures pricing showed just a 64.4% chance of rates holding steady or rising only a quarter point by the same date.
The Federal Open Market Committee, the Fed's rate-setting panel known as the FOMC, raised its benchmark federal funds rate by 25 basis points on Sept. 16 to a range of 3.75% to 4.00%, according to Motley Fool.
A basis point equals one one-hundredth of a percentage point. The move opened only the fourth rate-hiking cycle of the 21st century and came under Federal Reserve Chair Kevin Warsh, who took the post on May 22.
What the CME Data Shows
As of Sept. 25, the CME FedWatch Tool put the odds of no further rate increase by the Jan. 27, 2027, FOMC meeting at just 4%, Motley Fool reported.
Within the 96% chance of a hike, the tool showed a 24.9% probability of a quarter-point increase to 4.00%-4.25%, a 45.9% probability of a half-point rise to 4.25%-4.50%, and a 25.1% probability of a three-quarter-point jump to 4.50%-4.75%.
Tariffs Cited as a Driver
Motley Fool identified President Donald Trump's tariff and trade policy as one of four variables pushing the Fed toward tighter policy. Import duties are meant to protect domestic industries and make U.S. goods more competitive.
In practice, economists at the New York Federal Reserve, writing for the Liberty Street Economics blog, found tariffs have instead contributed to higher consumer prices, Motley Fool reported.
Other Pressures on the Committee
Motley Fool said two of the four variables driving the higher odds are directly tied to Trump administration policy affecting consumer prices, while a third involves the stock market's leading catalyst also feeding inflation.
The bond market, meanwhile, is sending the FOMC a clear signal to act, Motley Fool reported, without detailing the specific bond-market metric cited.the broader tightening path echoes warnings laid out in networth.com's earlier coverage of Fed Governor Barr signaled.
What It Means for Borrowers
A federal funds rate rising toward 4.75% by January 2027 would keep pressure on consumer borrowing costs, including credit cards, auto loans and mortgages. Networth.com has reported that the 30-year mortgage rate already sits near its highest level in almost two years.
The tightening also follows Trump's earlier push for the Fed to cut rates to 1%, a request the central bank did not follow, as detailed in networth.com's report on the Fed's rate increases.