This article is solely based on a macro scenario simulation built from the Fed’s June FOMC meeting dot plot, U.S. inflation/employment data, and views from major investment banks. It does not constitute any investment advice. Fed policy is entirely “data-dependent”; inflation, employment, and geopolitical conflicts can change the rate path at any time.

I. Current Baseline Situation (June 2026)



1. Benchmark rate: 3.50%-3.75%, unchanged for 4 consecutive FOMC meetings

2. Core contradiction: Inflation stickiness has significantly exceeded expectations; the economy and the job market remain resilient. The Fed’s policy focus has completely shifted from “rate cuts” to “preventing an inflation rebound.”

3. Key data (May)

- CPI YoY 4.2%, the highest since 2023; the full-year core PCE forecast has been revised up to 3.3%, far above the 2% target

- Unemployment rate 4.3%; the labor market remains tight, with no obvious recession signals

4. Key conclusions from the June dot plot (18 voting members’ projections)

- The end-2026 policy rate midpoint is 3.8%, implying one rate hike in the year (25bp)

- 9 officials support rate hikes during the year (3 for +25bp, 5 for +50bp, 1 for +75bp); only 1 official sees rate cuts

- 2027 policy rate midpoint 3.6%; 2028 3.4%; the rate-cut cycle is delayed substantially



II. Forecasts of Three Major Scenarios (H2 2026 – Full Year 2028)



Scenario 1: Baseline neutral scenario (probability 60%, aligned with the Fed dot plot median)



1. H2 2026: One rate hike, no rate cuts for the full year



- July FOMC: Keep 3.50%-3.75% unchanged, releasing a clear hawkish signal: “if the data does not improve, a September rate hike”

- September FOMC: Hike 25bp, bringing the rate to 3.75%-4.00%

Trigger conditions: Core CPI and PCE rebound for 2 consecutive months; service-sector inflation continues to rise; non-farm payroll employment remains strong

- Nov/Dec: No further adjustments to the policy rate for the year; year-end policy rate 3.75%-4.00%



2. 2027: Maintain high rates steadily throughout the year, with one small rate cut at year-end



For the full year, keep within the 3.75%-4.00% range; only in December cut by 25bp, taking the year-end rate to 3.50%-3.75%

Logic: Inflation slowly eases back toward around 2.5%, but it is still not at 2%; the Fed will not ease quickly



3. 2028: The rate-cut cycle officially begins, with 2 cuts during the year (total 50bp)



Cut 25bp in March and 25bp in June; the policy rate falls to 3.00%-3.25%, gradually converging toward the 3.1% long-term neutral rate



Scenario 2: Hawkish extreme scenario (probability 25%, mainstream forecasts from Bank of America and Deutsche Bank)



Core premise: Energy, tariffs, and service-sector inflation remain stubborn; AI investment boosts demand to overheat; inflation stays at 3.2% or above for the entire year



1. Rate hikes 2-3 times in 2026

- Deutsche Bank: Hike 25bp in September and 25bp in December; year-end rate 4.00%-4.25% (cumulative +50bp)

- Bank of America (most aggressive): Hike in September/October/December three times; cumulative +75bp; policy rate 4.25%-4.50%

2. In 2027, no rate cuts for the full year; keep high rates to suppress inflation

3. Only start rate cuts in H1 2028; for the full year, cut by just 50bp, with a very slow easing pace



Scenario 3: Dovish mitigation scenario (probability 15%, views from UBS and Citi)



Core premise: Oil prices fall sharply; rental inflation continues to decline; employment weakens; initial jobless claims trend upward; inflation falls quickly



1. No rate hikes for the full year in 2026; keep 3.50%-3.75% unchanged

- Citi’s extreme dovish view: Cut rates twice in October and December; total cuts for the year 50bp; year-end rate 3.00%-3.25%

2. Accelerate rate cuts in the first half of 2027; have 2-3 cuts for the full year; policy rates fall quickly back toward the neutral range



III. Key Observational Indicators That Determine Rate Hikes/Cuts (Key Turning-Point Signals)



Signals for further rate hikes (conditions to confirm a September hike)



1. Core PCE is ≥3.2% for two consecutive months, and CPI YoY remains consistently above 4%

2. Monthly non-farm payroll additions exceed 200k; the unemployment rate stays below 4.3%

3. Middle East geopolitical conflicts push oil prices higher persistently, driving an upswing in imported inflation

4. Goods and service-sector inflation spread in tandem, not a one-off disturbance



Preconditions to shift to rate cuts (if any is missing, it’s hard to ease)



1. Core PCE keeps falling to below 2.7% and shows a downward trend for 3 consecutive months

2. Employment clearly weakens: unemployment rises to 4.6% or above, and non-farm payroll additions fall to within 100k

3. U.S. consumer and manufacturing PMIs continue contracting, increasing the risk of a severe economic downturn

4. Oil-price and imported-tariff inflation pressures fully disappear



IV. Comparison Summary of the Complete Rate Paths (2026-2028)



Time period | Baseline neutral (60%) | Hawkish extreme (25%) | Dovish mitigation (15%)

H2 2026 | Hike 25bp in September, year-end 3.75%-4.00% | Hike 50bp in September/December, year-end 4.00%-4.25% | No change for the full year / cut 50bp at year-end

Full year 2027 | Cut 25bp at year-end, midpoint 3.6% | No rate cuts during the year, maintain 4.00%+ | Cut 2-3 times, midpoint 3.25%

Full year 2028 | Cut 2 times totaling 50bp, midpoint 3.4% | Cut 2 times totaling 50bp; easing only in H2 | Cut 3 times or more; approach 3.0%



V. Market and Asset Impact Scenario Analysis



1. U.S. dollar: If the rate-hike path materializes, the dollar index strengthens in the medium to long term; if dovish rate cuts are implemented, the dollar weakens persistently

2. U.S. Treasuries: Rising rate-hike expectations push up yields on both short- and long-end Treasuries; if rate-cut expectations rise, bond prices increase and yields decline

3. Equities: Sustained high interest rates suppress growth stocks and high-valuation AI segments; once the rate-cut cycle begins, it benefits technology and growth sectors

4. Commodities: Rate hikes are negative for gold and oil; rising rate-cut expectations are positive for precious metals



VI. Core Risk Variables (Will Completely Rewrite Rate Forecasts)



1. Geopolitical conflicts: A Middle East oil supply crisis and global trade tariff escalation directly raise inflation and force rate hikes

2. U.S. election fiscal policy: A new round of subsidies and infrastructure stimulus would lift aggregate demand and raise inflation

3. Labor market shock: Large-scale corporate layoffs trigger a recession, forcing the Fed to cut rates rapidly

4. Financial risk outbreak: A deep correction in U.S. stocks and blowups in commercial real estate would prompt the Fed to pause tightening and even restart easing