Will the upper bound of the target federal funds rate be 3.5% at the end of 2026?

Prediction markets put the probability at 8%: Will the upper bound of the target federal funds rate be 3.5% at the end of 2026. Currently, markets see this as unlikely (8% YES). Fed to hold rates this year, cut calls fade as war inflation persists, economists say: Reuters poll.

What’s Happening

As of June 2026, prediction market participants assign an 8% probability to the upper bound of the target federal funds rate being 3.5% at the end of 2026, with a 92% probability against that outcome. This low confidence reflects a sharp reversal from earlier expectations of rate cuts, driven by persistent war-driven inflation that has pushed the annual rate to roughly double the Fed's 2% target. A Reuters poll published June 9 found that nearly 70% of economists—72 of 102 respondents—expect the key rate to remain in its current 3.50%-3.75% range through year-end, effectively ruling out a move to a 3.5% upper bound. The poll marks the first clear consensus on a hold for the rest of 2026, as economists cited "war-driven inflation" proving more persistent than anticipated, with little prospect of a quick retreat. [Reuters, Jun 09]

The probability that the upper bound of the target federal funds rate will be 3.5% at the end of 2026 has been further undermined by hawkish signals from Fed officials and major financial institutions. On June 8, Goldman Sachs pushed its rate-cut call to 2027, citing "stronger economic activity and job growth" after a robust payrolls report, and now expects cuts in June and December 2027 instead of the previously forecast reductions in December 2026 and March 2027. The brokerage noted that "resilient activity and employment data also lower the bar for a rate hike." Separately, CNBC reported on June 10 that some Fed officials are now "raising the possibility of interest-rate hikes by year-end," a stark contrast to expectations just weeks earlier that borrowing costs would move lower. This shift follows a New York Fed survey on June 8 showing that public inflation expectations remained largely unchanged in May, but uncertainty over near-term price pressures rose amid "rising anxiety about personal finances." [Kitco, Jun 08] [CNBC, Jun 10]

Looking ahead, the path for the upper bound of the target federal funds rate to reach 3.5% by end-2026 appears increasingly narrow, contingent on a rapid and sustained decline in inflation that most economists deem unlikely. The current range of 3.50%-3.75% means that even a single 25-basis-point cut would bring the upper bound to 3.5%, but the consensus from the Reuters poll and Goldman Sachs suggests no such move is forthcoming. Key indicators to watch include the next CPI release, due in July 2026, and the Fed's Summary of Economic Projections, which will be updated at the September 2026 FOMC meeting. If inflation remains elevated and employment data stays strong, the probability of the upper bound being 3.5% at year-end could fall further, with some analysts now pricing in a risk of rate hikes that would push the upper bound above 3.75%. The market's 8% probability reflects a scenario where inflation cools unexpectedly or geopolitical tensions ease, but current data offers little support for that outcome. [Reuters, Jun 09] [Traded on Polymarket — $196K Volume

Polymarket prices this at 8c YES with $196K in volume. Moderate liquidity — use limit orders for positions above $1K to avoid moving the price.