The circularity of the Fed’s logic. What to expect next?

• Although the Fed continues to talk about the need to act to restrain higher inflation, elevated inflation did not seem to be driving yields higher.
• The Fed’s Summary of Economic Projections suggests another rate hike is likely in 2026 and inflation does not return to target until 2029.
• Long-term neutral rate expectations were revised higher.
• Long-term yields moved higher likely because short-end rates are expected to rise.

The Federal Open Market Committee raised rates by 25 basis points, as expected. Another rate hike appears likely given the Fed’s Summary of Economic Projections (SEP) (Exhibit 1). An open question remains why the projections do not show even more rate hikes as the forecasts do not show core PCE reaching the target until 2029.

Long-term neutral rate estimates were revised up by 10 basis points, to 3.2% while the forecast skew continues to suggest that this estimate is likely to continue to move higher.

We continue to expect two additional rate hikes this cycle – one in December of 2026 and one in Q1 2027, as the performance comes to an end.

Exhibit 1: The Economic Projections forecast of long-term Fed funds policy rate shows a bias toward continued increases

_{Note: MetLife Investment Management calculated the midpoints of the high and low range and central tendency estimates.}