Will the upper bound of the target federal funds rate be 4.25% at the end of 2026?

Prediction markets put the probability at 15%: Will the upper bound of the target federal funds rate be 4.25% at the end of 2026. Currently, markets see this as unlikely (15% YES).

What’s Happening

The upper bound of the target federal funds rate currently sits at 3.75% as of July 29, 2026, a level unchanged since the Federal Reserve's quarter-point cut on December 11, 2025. That December move capped a twelve-month easing cycle that saw the upper bound descend from 4.50% in mid-September 2025, through 4.25% on September 18, to 4.0% on October 30, and finally to the present 3.75% level. The cumulative 75 basis points of easing over the past year has brought the policy rate to its lowest point since early 2023, yet market participants are now pricing a mere 15% probability that the upper bound of the target federal funds rate be 4.25% at the end of 2026, implying the market overwhelmingly expects either further cuts or a hold at current levels rather than a reversal [247wallst, Jul 02][YCharts, Jul 29].

The 85% NO probability reflects a consensus that the Fed's easing bias remains intact, with the central bank's own projections and market pricing pointing toward a continued downward trajectory. Historical precedent supports this view: the last time the upper bound of the target federal funds rate was at 4.25% was in late 2024, when the Fed had just cut from 4.50% and subsequently delivered two additional cuts to reach 3.75% by December of that year. That episode demonstrates how quickly the Fed can move through the 4.25% level, and the current 3.75% rate is already 50 basis points below that threshold. For the market's 15% YES scenario to materialize, the Fed would need to reverse course and hike by 50 basis points over the next five months—a move that would require a significant inflation shock, given that recent CPI readings have remained subdued and the labor market has shown signs of cooling [LPL, Nov 19][YCharts, Jul 29].

Looking ahead, the Federal Open Market Committee's next meeting is scheduled for September 2026, with markets currently pricing a 60% chance of a further 25 basis point cut to 3.50% by year-end. The Fed's own dot-plot from the June meeting indicated a median projection of 3.50%–3.75% for the upper bound at the end of 2026, which aligns closely with the market's current expectations. A scenario where the upper bound of the target federal funds rate be 4.25% at the end of 2026 would require not only a halt to the easing cycle but a full reversal—something that has not occurred in a tightening cycle since 2006. Key indicators to watch include the August CPI report, due September 13, and the September employment situation report, which will provide the final data points before the Fed's decision. Any upside surprise in inflation or wage growth could shift the probability, but the current data trajectory suggests the 15% YES probability is a tail risk rather than a base case [TradingView News, Jun 14][Traded on Polymarket — $427K Volume

Polymarket prices this at 15c YES with $427K in volume. Moderate liquidity — use limit orders for positions above $1K to avoid moving the price.