A December interest rate hike may be the least surprising part of the Federal Reserve’s final meeting of 2026. Markets broadly expect rates to rise, putting the focus instead on what policymakers signal about 2027 as they weigh persistent inflation against a resilient labor market and potentially easing energy prices.
The Federal Open Market Committee’s September projections reinforce expectations for another hike, with most members forecasting one more increase in 2026. Lisa Cook and Beth Hammack also dissented when the FOMC held rates steady in October, favoring higher rates. Together, those signals make a December hike to 4% to 4.25% likely, while upcoming remarks from Fed officials could provide more insight into the policy outlook.
What Comes After A December Hike
Assuming a December hike as expected, markets will then want to refine their expectations for 2027. Broadly, markets expect the FOMC to tighten rates moderately next year, with one hike before summer the most likely outcome and perhaps two hikes by the end of the year. Currently, markets’ main question is how much rates might rise next year, not which direction they will go.
Falling Oil Prices Could Ease Inflation Pressure
However, against this backdrop of policy expectations, oil prices have fallen recently. At the start of November, West Texas Intermediate crude was over $100 a barrel. Now it’s below $90. At this point, it could just be temporary market noise, but if the trend persists, a declining oil price may do some of the FOMC’s work for it in cooling inflation. The 10-year Treasury yield has dropped recently, too, from October highs.
Energy is a relatively large and volatile component of inflation and has contributed to the recent move up in inflation. Should energy prices move lower, that’s expected to ultimately help bring inflation down, too. Of course, much of this depends on how the Middle East conflict plays out, as it’s currently creating a bottleneck for energy supply chains.
Inflation Risks Extend Beyond Oil
However, the inflation picture is not just about the oil prices. Policymakers are watching the impact of tariffs and AI spending as well. Both are contributing to inflation to a degree.
Beyond that, the FOMC is also looking to assess how much the rise in inflation in recent years has started to affect inflation expectations for individuals and businesses. The FOMC’s annual inflation goal is 2%, but inflation has now run above that for several years.
The Jobs Market Remains Resilient
In 2026, the unemployment rate has fallen through October. A robust jobs market gives the Fed the ability to focus on inflation, as the jobs market doesn’t appear to need any support.
So far, the Fed has raised interest rates with limited evidence that the increases have affected the job market. If that changes, the Fed will have more of a trade-off to consider on interest rates.
What To Watch In December
Markets firmly anticipate an interest rate hike on Dec. 9 based on current economic data. However, the fixed-income markets’ main question is the trajectory of interest rates in 2027.
Currently, markets expect a gradual pace of hikes next year. That said, there is a reasonably broad spread of outcomes, with most involving some level of tighter interest rates. Much will depend on how energy prices move over the coming months, since energy prices are one of the recent drivers of higher inflation.
Source: Forbes