Deutsche Bank strategists report that after a hawkish Federal Open Market Committee (FOMC) under new Chair Kevin Warsh, they now forecast two 25 bps Fed hikes in 2026, likely in September and December, taking the fed funds rate to around 4.1%. Markets have repriced to about 39 bps of tightening by December, with the Treasury curve flattening as short-end yields rise.

Two hikes and prolonged pause projected

"Moving over to the other side of the Atlantic, after a hawkish FOMC last week with a clear shift in style from new Fed Chair Kevin Warsh, our economists now have two 25bps hikes in their Fed forecast."

"The central scenario sees two rate increases this year, likely in September and December, taking the fed funds rate to around 4.1%, followed by a prolonged pause through 2027."

"But even as inflation expectations fell, the Fed’s latest decision on Wednesday led to a clear hawkish repricing for markets."

"Notably, 9 of the 18 officials in the dot plot signalled there should be a rate hike this year, although new Chair Kevin Warsh did not submit a dot himself."

"By the end of the week, 39bps of Fed hikes were priced in by December, up from 21bps at the start of the week."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)