Wells Fargo expects Federal Reserve to hold rates steady through 2026

Wells Fargo’s economics team is betting the Federal Reserve will keep its hands off the rate dial for the rest of 2026. The bank projects the federal funds rate will stay locked at its current 3.50%-3.75% target range through year-end, a forecast that reflects a broader market reckoning with inflation that just won’t quit.

Chief economist Tom Porcelli has been reinforcing this view as recently as early August, arguing that the inflation pressuring the US economy is largely supply-driven. Tariffs and oil price swings, in his assessment, aren’t the kind of problems you solve by tweaking interest rates.

From rate cuts to rate patience

The forecast represents a notable pivot for Wells Fargo itself. Earlier in 2026, the bank’s economists had anticipated modest rate cuts as part of a gradual easing cycle. That expectation got shelved as incoming inflation data stubbornly refused to cooperate.

Multiple brokerages have pulled back their earlier projections for rate cuts this year. Some have even floated the possibility of a modest rate hike later in 2026, though that remains a minority view.

The Fed’s recent meetings have done little to challenge the hold-steady consensus. Policymakers have maintained the 3.50%-3.75% range, and market expectations reflect limited near-term action in either direction.

Why supply-side inflation changes the calculus

Porcelli’s argument hinges on a distinction that matters enormously for policy. Demand-driven inflation, the kind where consumers are spending so aggressively that prices get pushed up, is precisely the type of problem higher interest rates are designed to address. Supply-driven inflation is a different animal. When prices rise because tariffs make imports more expensive or because oil markets are volatile, raising rates doesn’t fix the underlying problem.

This framing explains why Wells Fargo sees the Fed in a holding pattern. New Fed Chair Kevin Warsh appears to have adopted a cautious, wait-and-see posture, reluctant to move in either direction without clearer signals that the inflation picture has fundamentally shifted.

What this means for markets

A stable rate environment through year-end 2026 carries real implications for how investors position their portfolios. For fixed-income markets, the clarity is somewhat welcome. Bond investors can price securities against a known rate backdrop rather than constantly guessing at the next Fed move.

Wells Fargo’s outlook suggests that any significant policy shift won’t arrive until 2027 at the earliest. Higher-for-longer rates mean the cost of capital stays elevated, which weighs on companies that rely on cheap borrowing to fuel expansion.

Market sentiment remains mixed on the probability of future adjustments. While the base case from Wells Fargo and several peers points to stability, a modest hike scenario hasn’t been fully priced out, and the possibility of cuts if inflation data finally breaks favorably lingers in futures markets as a low-probability outcome.

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