Wall Street's biggest banks have lined up behind a Federal Reserve interest rate increase, with 19 of 21 institutions surveyed by The Wall Street Journal predicting a September hike. Most firms expect a total of 50 basis points of tightening across 2026, while Bank of America, Deutsche Bank and RBC are more hawkish at 75 basis points. Goldman Sachs forecasts only a 25 basis point total increase in 2026, while Jefferies expects a December cut and Oxford Economics sees no change until 2027.
As the Fed decision approaches on Wednesday, markets are pricing in a 92% probability that the central bank will raise its benchmark rate by 25 basis points to a 3.75%-4.00% range, marking the first U.S. rate hike since mid-2023. The Dollar Index was nearly flat near 99.59 after several days of gains. Traders are focused on Fed Chair Kevin Warsh's press conference, where he may frame the move as a one-off guard against energy-driven inflation or signal a series of increases.
Crude oil above $113 per barrel, driven by attacks on Saudi pipeline infrastructure and Houthi strikes in the Red Sea, has become a key inflation catalyst. ANZ analysts expect back-to-back Fed hikes, though note the October meeting is close to U.S. midterm elections.
Currency markets are also on edge: the euro was flat near $1.1554 after the European Central Bank raised its deposit rate by 25 basis points to 2.50% last Thursday. The British pound held near $1.3483 with UK inflation at 3.1% and a Bank of England decision due Thursday. The yen recovered to around 154.97 per dollar, with an 80% chance priced for a Bank of Japan hike to 1.25% on Friday, and two hikes priced in by the end of January. Julius Baer economist David Meier said the yen's path will depend heavily on interest rate differentials, revising the bank's USD/JPY forecast to 155.
