Reasoning
The current federal funds target range is 3.50 to 3.75 percent, with the Federal Reserve signaling a more hawkish stance by erasing the prior cutting bias at the June 17 meeting. Furthermore, the median projection for the year end 2026 funds rate has risen to 3.8 percent, with nine participants projecting rates above the current target range, indicating a potential for sustained higher rates. Given the 2 year Treasury yield is currently 3.978%, a move above 4.50% in H2 2026 is plausible if inflation proves more persistent than anticipated or if the Fed maintains a higher for longer policy stance than currently priced in.Key uncertainty
The direction and magnitude of future inflation prints and their impact on the Federal Reserve's monetary policy decisions, specifically whether they will necessitate additional rate hikes or prolonged holds at restrictive levels.