Federal Reserve Projects Interest Rate Hike to 3.8%

The Federal Reserve expects the federal funds rate to rise to 3.8% by the end of 2026, an increase from the current target range of 3.5% to 3.75%. The Federal Open Market Committee issued this projection on Wednesday to address rising inflationary pressures, now forecasting inflation to hit 3.6% in 2026, up from a 2.7% estimate made in March.

Despite these challenges, the central bank reported that U.S. economic activity is expanding at a solid pace. This growth is supported by strong capital investment and productivity, while job gains have remained consistent with workforce needs.

The FOMC anticipates a cooling period for inflation in 2027, projecting a drop to 2% by the end of 2028. This expected decline would enable the federal funds rate to decrease to an average target of 3.4% by that time.