Reasoning
As of mid August 2026, there are approximately 4.5 months until year end. The Fed has held rates steady at 3.50 to 3.75 percent since June 17, 2026, and the June SEP median projects year end 2026 funds rate at 3.8 percent, suggesting the Committee expects no rate cuts before December. With Chair Warsh's policy stance having erased the prior cutting bias and nine of eighteen participants projecting rates above the current range, the Fed appears committed to restrictive policy. For headline CPI to fall below 3.5 percent by year end given the current policy stance would require either: (1) significant disinflationary momentum already underway that accelerates further, or (2) an economic shock forcing rapid policy reversal. The 4.5 month window is relatively short for major disinflation without policy accommodation, and the Fed's hawkish forward guidance suggests this scenario is not the base case.Key uncertainty
The trajectory of actual headline CPI readings between August and December 2026; if recent monthly prints show momentum toward 3.5 percent or below, or if energy price shocks occur, the probability shifts materially higher, while if inflation stalls above 3.5 percent the probability approaches zero.