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

Prediction markets put the probability at 6%: Will the Fed increase interest rates by 25 bps after the July 2026 meeting. Currently, markets see this as unlikely (6% YES). Veteran analyst Yardeni stuns Wall Street with Fed interest rate forecast - TheStreet.

What’s Happening

As of late May 2026, financial markets are pricing a mere 6% probability that the Federal Reserve will increase interest rates by 25 basis points after the July 2026 meeting, according to aggregated derivatives data. This contrasts sharply with a 42% chance of a rate hike by year-end implied in fed funds futures earlier in the month, as noted by Ed Yardeni of Yardeni Research. The divergence stems from the upcoming transition in Fed leadership: Kevin Warsh is set to be sworn in as Chair on May 22, replacing Jerome Powell. Minutes from the Fed’s April meeting, released on May 20, revealed growing support among officials for taking the first step toward a possible rate increase, citing persistent inflation risks. [CNBC, May 18] [MarketWatch, May 20]

The low probability for a July hike reflects a market that remains skeptical of near-term tightening despite mounting inflationary pressures. The core Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge, has run above 3.0% for three consecutive months through April, well above the 2% target. Meanwhile, the yield on the 10-year Treasury note has climbed to 4.85%, up from 4.20% in early April, signaling bond vigilante demands for higher policy rates. Yardeni warned that "the Fed must catch up to the bond market to avoid losing control of borrowing costs," a view that has gained traction since the April minutes showed officials "increasingly concerned" about inflation staying elevated. Historically, when the Fed has hiked after a prolonged pause—last seen in March 2022—it triggered a sharp equity selloff and a flattening of the yield curve. [TheStreet, May 18] [MarketWatch, May 20]

Looking ahead, the key catalyst for the Fed to increase interest rates by 25 bps after the July meeting will be the June 2026 Consumer Price Index (CPI) report, due on July 15, and the subsequent Federal Open Market Committee (FOMC) decision on July 29. The incoming Chair, Kevin Warsh, has not yet signaled his policy stance publicly, but his prior writings suggest a hawkish tilt on inflation. Separately, student loan borrowers face a direct impact: interest rates on new federal loans for the 2026–27 academic year will rise effective July 1, reflecting the higher Treasury yields. If the Fed does move in July, it would mark the first rate increase since July 2023, breaking a three-year hold. The current 6% probability implies the market expects the Fed to maintain its current target range of 5.25%–5.50%, but the April minutes and bond market pressure suggest the risk of a hike is higher than the pricing indicates. [Traded on Polymarket — $3.6M Volume

Active market on Polymarket with $3.6M in total volume. Sufficient liquidity for most position sizes. Currently priced at 5c YES.