Will the upper bound of the target federal funds rate be 4.0% at the end of 2026?

Prediction markets put the probability at 29%: Will the upper bound of the target federal funds rate be 4.0% at the end of 2026. Currently, markets see this as unlikely (29% YES). Fed officials were split on direction of interest rates at last meeting, minutes show.

What’s Happening

The probability that the upper bound of the target federal funds rate be 4.0% at the end of 2026 currently stands at 29%, according to market data, reflecting a significant divergence from the Federal Reserve’s own projections. This low probability comes after the release of the Fed’s June 16-17 meeting minutes on July 8, 2026, which revealed a deeply divided Federal Open Market Committee (FOMC). Policymakers debated scenarios in either direction, with Chair Kevin Warsh characterizing the discussion as a "family fight" before the committee unanimously voted to hold the benchmark rate at 3.5%-3.75%. The minutes showed that while all officials agreed inflation risks remain tilted to the upside, there was no consensus on whether the next move would be a hike or a cut, leaving the path for the upper bound of the target federal funds rate be 4.0% at the end of 2026 highly uncertain. [CNBC, Jul 08]

The market’s 71% NO probability implies traders broadly expect the Fed to keep rates below the 4.0% upper bound, a view supported by softer-than-expected inflation data and forward guidance from Commerzbank analysts, who forecast the fed funds rate at 3.75% through early 2027 before cuts to 3.50%. This contrasts with a separate Kalshi market showing 54% odds of a rate hike in 2026 overall, suggesting traders see a higher chance of a single quarter-point increase that would still leave the upper bound at 3.75% or 4.0%. The divergence highlights the market’s skepticism that the Fed would hike enough to push the upper bound to exactly 4.0% by year-end, especially given that the last time the Fed raised rates to that level in 2023, it triggered a sharp tightening in financial conditions and a subsequent pause. [Commerzbank via Bitget, Jul 11]

Looking ahead, the key catalysts for this market will be the July 29-30 FOMC meeting and the release of August CPI and employment data. The June minutes noted that "many" officials viewed the labor market as likely to remain stable in the short term, but persistent upside inflation risks could force a hawkish pivot. Former St. Louis Fed President Jim Bullard criticized the committee’s plan for a single hike followed by a hold, calling it incoherent. If the Fed signals a second hike or a higher terminal rate, the probability of the upper bound of the target federal funds rate be 4.0% at the end of 2026 could rise sharply. Conversely, a continued softening in core PCE inflation—currently running at 2.8%—would reinforce the 71% NO view that rates will stay below that threshold. [AP News, Jul 08]

Traded on Polymarket — $1.4M Volume

Active market on Polymarket with $1.4M in total volume. Sufficient liquidity for most position sizes. Currently priced at 29c YES.