BNP Paribas chief economist Isabelle Mateos y Lago has issued a revised forecast suggesting the Federal Reserve may implement three consecutive interest rate hikes starting in December 2026. This strategy would effectively reverse the three rate cuts performed by the central bank throughout 2025.
The updated outlook is driven by persistent inflation and a robust labor market. In July 2026, headline inflation reached 3.4%, while core inflation stood at 2.5%, both exceeding the Fed's 2% target. Additionally, May 2026 nonfarm payrolls increased by 172,000, significantly surpassing the expected 85,000.
Market participants are preparing for potential changes, with futures pricing indicating a 70% probability of a 25 basis point hike during the September 15–16 FOMC meeting. The upcoming August CPI report, due September 11, is anticipated to fall between 3.3% and 3.4%.
Geopolitical tensions between the US and Iran continue to exert upward pressure on energy and manufacturing costs. BNP Paribas expects the unemployment rate to move toward 4% by the end of 2026, potentially providing the Fed with further justification to prioritize inflation control.
While the digital asset market has historically reacted negatively to tightening cycles, current institutional infrastructure, including spot ETFs and regulated custody, may offer different dynamics compared to the 2022–2023 period.
