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

Prediction markets put the probability at 34%: Will the upper bound of the target federal funds rate be 3.5% at the end of 2026. Currently, markets are divided (34% YES, 66% NO). BENGALURU, April 22 (Reuters) - The U.S.

What’s Happening

As of late April 2026, prediction market participants assign a 34% probability to the upper bound of the target federal funds rate being 3.5% at the end of 2026, with a 66% probability against that outcome. This pricing reflects a sharp reversal from earlier expectations of rate cuts, driven by a Reuters poll of 103 economists conducted April 17-21. A slim majority—56 of those surveyed—now project the Fed's benchmark rate will remain steady in the 3.50%-3.75% range through the end of September, as war-driven energy shocks reignite inflation. The poll marks a significant shift from February 2026, when nearly 70% of economists expected at least one quarter-point reduction by September, underscoring how geopolitical disruptions have upended the monetary policy trajectory. [Reuters, Apr 22]

The probability that the upper bound of the target federal funds rate will be exactly 3.5% at the end of 2026 is now a minority view, as persistent inflation pressures delay the Fed's easing cycle. The April 22 Reuters poll highlighted that war-related energy shocks have pushed the first expected rate cut to at least late 2026, with the Fed's benchmark currently in the 3.50%-3.75% range. This aligns with the March 2026 Consumer Price Index (CPI) report, which showed annual inflation accelerating to 3.8%, well above the Fed's 2% target, driven by a 12% surge in energy costs. Historically, when the Fed has faced similar supply-side shocks—such as during the 2022 energy crisis—the central bank maintained elevated rates for an average of 18 months after the initial shock, suggesting the current hold could extend into 2027. [Forbes, Apr 22]

Looking ahead, the Federal Reserve's April 28-29 policy meeting is widely expected to result in no change to the federal funds rate, with the upper bound remaining at 3.75%. This meeting may also be Chair Jerome Powell's last, as the Department of Justice recently dropped its criminal investigation into him, clearing a path for potential confirmation of a successor under President Donald Trump. The April 24 CNBC report noted that markets are pricing in a "regime change" at the Fed, which could alter the central bank's reaction function to inflation data. Key indicators to watch include the May 2026 jobs report and the next CPI release on May 13, as a sustained inflation reading above 3.5% would further reduce the probability of the upper bound falling to 3.5% by year-end. The yield curve remains inverted, with the 2-year Treasury yielding 4.1% versus the 10-year at 3.9%, a classic recession signal that historically precedes rate cuts by 12-18 months. [Traded on Polymarket — $184K Volume

Polymarket prices this at 34c YES with $184K in volume. Moderate liquidity — use limit orders for positions above $1K to avoid moving the price.