This article is for informational purposes only and does not constitute financial advice. Interest rate forecasts are estimates based on available data and may change. Past performance is not a reliable indicator of future results. Capital at risk.
This article is for informational purposes only and does not constitute financial advice. Interest rate forecasts are estimates based on available data and may change. Past performance is not a reliable indicator of future results. Capital at risk.
What Is the Current Federal Reserve Interest Rate?
The Federal Reserve raised its policy rate to 3.75%–4.00% at its September 16 meeting — the first rate hike in more than three years. The decision was unanimous, marking a significant shift in the Fed’s stance after a period of holding rates steady while monitoring the impact of the Middle East energy shock on US inflation.
The September Summary of Economic Projections raised the median year-end federal funds rate forecast from 3.8% to 4.1% for 2026, from 3.6% to 4.1% for 2027 and from 3.4% to 3.9% for 2028. The message from the Fed is clear: higher for longer.
Why Did the Fed Raise Rates in September 2026?
The September hike came after more than a year of holding rates steady at 3.5%–3.75%. As of October 2026, inflation is hovering around 3.4% to 3.7%, which is still quite a bit higher than the Fed’s 2% target.
Three factors drove the decision to hike:
Energy prices — the Middle East conflict has kept oil and energy prices elevated throughout 2026, feeding directly into headline inflation. Unlike supply-chain inflation which tends to resolve on its own, energy-driven inflation is more persistent and requires a policy response.
Resilient US growth — the US economy has remained surprisingly robust despite elevated rates. Strong labour market data, consumer spending, and corporate earnings have given the Fed room to tighten without triggering a recession.
New Fed Chair priorities — Fed Chair Kevin Warsh has made it clear that controlling inflation and earning back trust is the top priority. Unlike his predecessor, Warsh has signalled a more hawkish approach to inflation management, with a lower tolerance for above-target price growth.
When Is the Next Federal Reserve Meeting?
The remaining FOMC meeting dates for 2026 are:
- 5–6 November 2026
- 16–17 December 2026
J.P. Morgan Global Research continues to look for one more hike at the December meeting, in line with the revised median FOMC expectations.
Both meetings will be watched closely by global markets, any shift in the dot plot or press conference language will immediately affect US equity markets, the US dollar, and risk assets globally.
Federal Reserve Rate Forecast: 2026 and 2027
2026 Outlook: One More Hike Expected
16 of 19 members of the FOMC expect at least one more rate hike this year, according to the Fed’s dot plot of projections.
The dot plot showed that the median of FOMC members expects one additional rate hike in 2026. The most likely scenario is a 25 basis point increase at the December meeting, taking the fed funds rate to 4.00%–4.25% by year end.
2027 Outlook: Higher for Longer — No Cuts Expected
The median rate remains at 4.1% through the end of 2027, with the first decline appearing only in 2028.
The latest predictions show rates staying put, near that 4.1% mark, all through 2027. This “higher for longer” stance reflects the Fed’s determination to bring inflation sustainably back to 2% rather than cutting prematurely, a mistake it believes was made in previous cycles.
J.P. Morgan expects the Fed to remain on hold for the rest of 2026 after December, with the next rate hike expected in September 2027, though risks are tilted toward an earlier move.
Fed Rate Forecast Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forecasts as of October 2026. Subject to change.
The Dot Plot: What Is It and Why Does It Matter?
The Federal Reserve’s “dot plot” is one of the most closely watched documents in global finance. Published quarterly alongside the Summary of Economic Projections, it shows where each individual FOMC member believes the federal funds rate should be at the end of each year and in the longer run.
The more telling signal at September’s meeting was the “longer run” dots — the part of the dot plot that shows where Fed members believe the fed funds rate should eventually settle. Those dots have generally been moving higher in recent years, and the median long-run dot moved up again at this meeting.
This shift in the long-run neutral rate estimate is significant — it suggests the Fed believes the structural level of interest rates is higher than pre-pandemic norms, which has profound implications for asset valuations across equities, bonds, and property.
What Does This Mean for UK Investors and Traders?
The Federal Reserve’s decisions ripple across global markets and directly affect UK investors and traders across multiple asset classes:
US equities — higher US rates increase the discount rate applied to future earnings, which can weigh on equity valuations, particularly for growth stocks with long-duration earnings profiles. The NASDAQ 100 and technology sector are most sensitive to rate expectations. You can trade US equity exposure through XTB’s shares platform or via indices CFDs on the US 500 and US Tech 100.
USD/GBP — Fed rate hikes tend to strengthen the US dollar by attracting capital seeking higher yields. A stronger dollar means a weaker pound relative to the USD. For UK investors with US equity or ETF exposure, dollar strength provides a tailwind on returns when converted back to GBP. Read our guide to forex trading in the UK for more on how Fed decisions affect currency markets.
Gold — gold tends to have a complex relationship with interest rates. Higher real rates increase the opportunity cost of holding gold (which pays no yield), which can weigh on the price. However gold also benefits from uncertainty and dollar weakness — meaning the net effect depends on which factor dominates. Read our guide to gold trading for more context.
Bond markets — rising rate expectations push US Treasury yields higher and bond prices lower. Short-dated Treasuries are most sensitive to near-term Fed expectations. For investors interested in fixed income exposure, read our guide to fixed income ETFs.
UK rates — the Bank of England and Federal Reserve do not move in lockstep, but Fed policy influences global rate expectations and UK gilt markets. A more hawkish Fed makes it harder for the Bank of England to cut rates without triggering sterling weakness and imported inflation. Read our UK interest rate forecast for the full Bank of England outlook.
How Do US Rates Affect Investment Portfolios?
For long-term investors, the shift to a higher-for-longer interest rate environment has several practical implications:
Equities vs bonds rebalancing — with US 10-year Treasury yields now offering meaningful real returns, the case for holding bonds alongside equities is stronger than at any point since the pre-2008 era. The traditional 60/40 portfolio — 60% equities, 40% bonds — is arguably more attractive now than during the zero-rate years.
Growth vs value rotation — higher rates tend to favour value stocks (companies with near-term earnings) over growth stocks (companies with distant future earnings). The technology sector has historically underperformed during rate hiking cycles while financial, energy and industrial stocks have often outperformed.
Dividend stocks — higher interest rates make bonds more competitive with dividend-paying stocks. However companies with strong dividend growth track records — the dividend kings and aristocrats — have historically held up well in rate hiking cycles due to their pricing power and financial resilience.
For structured long-term exposure to global equities, read our guide to Investment Plans or explore ETF investing for diversified market exposure.
Risk Warning
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Capital at risk. Investment values can rise or fall.
Forecasts and analyst predictions referenced in this article are third-party estimates based on available data at the time of writing and are subject to change. They do not constitute financial or investment advice.
FAQ
The Federal Reserve raised its policy rate to 3.75%–4.00% at its September 16 2026 meeting — its first rate hike in more than three years. The decision was unanimous.
16 of 19 FOMC members expect at least one more rate hike before the end of 2026, according to the September dot plot. The December meeting is the most likely opportunity, with markets and J.P. Morgan both expected a further 25 basis point increase.
The Fed’s September projections show rates remaining at approximately 4.1% through the end of 2027, with the first decline appearing only in 2028. Rate cuts in 2027 are not expected by the majority of forecasters.
The dot plot is a chart published by the Fed four times per year showing where each FOMC member expects interest rates to be at the end of each year and in the long run. It is one of the most closely watched indicators of future Fed policy direction. The September 2026 dot plot showed the median expectation for rates at 4.1% through end-2027.
Fed decisions affect US equity valuations, the US dollar, gold prices, and global bond markets — all of which are relevant to UK investors with international exposure. A stronger dollar from Fed rate hikes provides a tailwind for UK investors holding US assets when converted back to GBP.
Kevin Warsh is the current Federal Reserve Chair, who has made controlling inflation and earning back the Fed’s credibility his top priority. Warsh has signalled a more hawkish approach than his predecessor, with a lower tolerance for above-target inflation.
US mortgage rates are influenced by the federal funds rate but are more directly tied to 10-year Treasury yields. When the Fed raises rates and signals a higher-for-longer path, Treasury yields typically rise, pushing mortgage rates higher. This has significant implications for the US housing market and consumer spending.
Both are central bank benchmark interest rates but they are set independently by different institutions for different economies. The Fed sets the federal funds rate for the US; the Bank of England sets the base rate for the UK. While they often move in the same direction due to shared global inflation dynamics, they can and do diverge — as the current environment demonstrates.
UK Interest Rate Forecast 2026-2027: Where Could Rates Go Next?
UK Mortgage Rates Forecast 2026-2027: When Could Rates Fall?
Anthropic IPO — What UK Investors Should Expect
This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.