United States interest rate forecast: third-party predictions
Where could US interest rates be in five years? Explore the Fed’s outlook and forecasts from major financial institutions.
Following three rate cuts in 2025, the Federal Reserve changed direction on 16 September 2026, raising its federal funds target range to 3.75%-4%. All 12 voting members backed the quarter-point increase (Federal Reserve, 16 September 2026).
The Fed cited solid economic activity and persistent inflation, saying the move would help bring price growth back to its 2% target.
With inflation still above target and employment holding steady, attention has turned from further cuts to the prospect of additional increases.
The Fed’s September 2026 Summary of Economic Projections put the median policy-rate projection at 4.1% for the end of both 2026 and 2027, falling to 3.9% in 2028 and 3.6% in 2029 (Federal Reserve, 16 September 2026).
These are rounded midpoints of projected target ranges, not policy commitments. Past performance is not a reliable indicator of future results.
Projected US interest rates in five years
Interest rate projections tend to focus on the near term, as uncertainty increases significantly over longer horizons.
The Fed’s September 2026 projections put the longer-run median rate at 3.2%, with individual estimates ranging from 2.9%-3.9%. This indicates where policymakers think rates could settle over time, rather than providing a specific forecast for September 2031 (Federal Reserve, 16 September 2026).
The following bank forecasts cover shorter horizons, with differences in the timing and extent of further increases:
- J.P. Morgan Wealth Management expects another quarter-point rise by the end of 2026, taking the target range to 4%-4.25%. Its 17 September commentary points to persistent inflation and elevated energy costs, while stressing that the outlook remains dependent on economic data (Chase Bank, 17 September 2026).
- Goldman Sachs also expects a range of 4%-4.25%, but places the next increase in October 2026. The bank had previously forecast just one rise during the year, before revising its outlook after the September meeting (Investing.com, 17 September 2026).
- Bank of America Global Research expects the Fed to raise rates by 25 basis points in both October and December 2026, taking the target range to 4.25%-4.5% (Reuters, 17 September 2026).
| Institution | Expected 2026 rate path | Forecast year-end range |
|---|---|---|
| BofA Global Research | Two 25 bp hikes – October and December | 4.25%-4.50% |
| Goldman Sachs | One 25 bp hike – October | 4%-4.25% |
| J.P. Morgan | One 25 bp hike – December | 4%-4.25% |
| Nomura | One 25 bp hike – December | 4%-4.25% |
| HSBC | One 25 bp hike – December | 4%-4.25% |
| Barclays | One 25 bp hike – December | 4%-4.25% |
| Deutsche Bank | One 25 bp hike – December | 4%-4.25% |
| UBS Global Wealth Management | One 25 bp hike – December | 4%-4.25% |
| UBS Global Research | One 25 bp hike – December | 4%-4.25% |
| Morgan Stanley | One 25 bp hike – December | 4%-4.25% |
| Macquarie | One 25 bp hike – December | 4%-4.25% |
| BNP Paribas | One 25 bp hike – December | 4%-4.25% |
| Standard Chartered | One 25 bp hike – December | 4%-4.25% |
| Citigroup | No further change | 3.75%-4% |
Source: Reuters, 17 September 2026.
Will US interest rates continue to fall?
The near-term outlook has shifted towards further increases rather than renewed cuts. Inflation and employment data help explain why.
The personal consumption expenditures (PCE) price index rose 3.7% year on year in July 2026, while core PCE inflation, which excludes food and energy, stood at 3.3%. Both remained above the Fed’s 2% inflation objective (BEA, 26 August 2026).
Meanwhile, the labour market showed little sign of a sharp slowdown. Nonfarm payroll employment increased by 162,000 in August, and unemployment was unchanged at 4.1% (BLS, 4 September 2026).
Morgan Stanley and Macquarie expect tightening to extend into 2027, having added a March increase to their forecasts for December 2026. A sustained decline in inflation or a marked weakening in employment could, however, create room for cuts instead (Investing.com, 17 September 2026).
Interest rates and their role in financial markets
Rate expectations affect more than borrowing costs. They also influence spending, asset valuations and financial conditions across the economy.
How the federal funds rate influences the economy
The Federal Reserve sets a target range for the federal funds rate (FFR), the overnight rate at which banks lend to one another.
Decisions are made by the Federal Open Market Committee (FOMC), which holds eight regularly scheduled meetings each year (Federal Reserve, 17 September 2026).
Changes feed through to other lending rates, including the prime rate set by individual banks. Higher borrowing costs can reduce household spending and business investment, helping to ease demand and price pressures (Federal Reserve, accessed 24 September 2026).
Impact on equities and company valuations
For equity markets, higher rates can put pressure on businesses reliant on consumer spending, including retailers and hospitality companies. Firms that depend on external financing may also face higher costs (Federal Reserve, accessed 24 September 2026).
Valuations can be affected too.
When investors apply higher discount rates to future earnings, those earnings are worth less in today’s terms. This can weigh particularly on companies whose valuations depend on profits expected further into the future (Chase Bank, 17 September 2026).
Interest rates, yield curves and discounting
Policy rates influence short-term yields, while longer-term yields also reflect expectations for future rates and a term premium – the compensation investors seek for bearing interest rate risk over time.
These influences help explain why mortgage rates don’t always move in step with Fed decisions (Federal Reserve Bank of New York, accessed 24 September 2026).
Effects on bonds and fixed-income markets
When market yields rise, existing fixed-rate bonds with lower coupon payments generally fall in price to remain competitive with new issues. All else equal, longer-dated bonds tend to be more sensitive to these changes. Falling yields can have the opposite effect, although interest rates aren’t the only factor affecting bond prices (FINRA, 19 September 2026).
A brief history of the Fed’s interest rate policy
Past rate cycles provide context for today’s forecasts, showing how policy has responded to changing economic conditions.
Post-war period and early rate cycles
The effective federal funds rate was below 2% during parts of the 1950s, but rose later in the decade. Larger swings followed in the 1960s and 1970s, with rates exceeding 10% during parts of the latter decade (FRED, 2 September 2026).
The Volcker era and inflation control
In the early 1980s, under then-chair Paul Volcker, the federal funds rate approached 20% as the Fed tightened policy to address double-digit inflation. Rates subsequently eased as inflation moderated, although the path remained uneven (Federal Reserve History, accessed 24 September 2026).
Financial crises and ultra-low rates
The 2007–09 global financial crisis brought a different response. The Fed cut rates to near zero and introduced large-scale asset purchases, known as quantitative easing, to support financial conditions and economic activity (Federal Reserve History, accessed 24 September 2026).
It returned to these tools during the Covid-19 pandemic, cutting the target range to 0%-0.25% in March 2020 and expanding its securities purchases (Federal Reserve, 15 March 2020).
The post-pandemic tightening cycle
The Fed raised rates sharply in 2022 and 2023 in response to post-pandemic inflation, taking the target range to 5.25%-5.5%. Cuts began in September 2024, followed by three reductions in 2025 that brought the range to 3.5%-3.75% by December. The September 2026 increase marked a return to tightening (Federal Reserve, accessed 24 September 2026).
Key factors that could influence interest rates in five years
Beyond individual meetings, the longer-term outlook depends on how inflation, growth and the wider economy evolve.
- Inflation and expectations: a sustained return to the Fed’s 2% target could allow policy to become less restrictive. Persistent price pressures or rising inflation expectations could instead keep rates higher for longer.
- Economic growth: the Fed’s September 2026 median projections put real gross domestic product (GDP) growth at 2.3% in 2026 and 2.4% in 2027, with unemployment at 4.1% in both years. Stronger activity may limit the scope for cuts, while weaker growth could support easing (Federal Reserve, 16 September 2026).
- Labour market conditions: employment, wages and workforce participation help policymakers assess pressure on the economy. A cooling labour market may reduce inflationary pressure, while sustained wage growth relative to productivity can complicate the outlook.
- Fiscal stance and term premia: rising government debt and deficits can put upward pressure on longer-term yields. As a result, borrowing costs may remain elevated even if the Fed lowers its policy rate. Research published by the Fed in 2026 links higher expected debt to increases in both the longer-run neutral rate and the Treasury term premium (Federal Reserve, accessed 24 September 2026).
- Global economic developments: geopolitical events, energy prices and supply disruptions can alter the outlook for inflation and growth. These external factors can change the balance facing policymakers, even when domestic conditions are relatively stable.
- Structural factors: demographics, productivity and savings patterns influence the neutral rate – the level that neither stimulates nor restrains the economy. It can’t be observed directly, and estimates vary. A Cleveland Fed study published in September 2025 estimated a medium-run nominal neutral rate of 3.7%, using data through the second quarter of 2025. Its 68% coverage interval spanned 2.9%-4.5%, illustrating the uncertainty. This was a historical model estimate, not a five-year forecast (Federal Reserve Bank of Cleveland, accessed 24 September 2026).
FAQ
How often do interest rates change?
The Fed reviews policy at eight scheduled FOMC meetings each year, but it doesn’t have to change rates at every meeting. It can raise, lower or leave them unchanged, depending on economic conditions. Changes can also take place between scheduled meetings when circumstances require.
Where will interest rates be in five years?
There’s no fixed path. The Fed’s September 2026 longer-run median projection was 3.2%, but this isn’t a forecast for September 2031. The bank forecasts discussed above cover shorter horizons. Any five-year outlook remains dependent on future inflation, growth and economic shocks.
Will interest rates go up or down?
Persistent inflation could keep rates higher, while weaker growth or easing price pressures could allow cuts. As of 24 September 2026, the bank forecasts covered here point to further near-term increases, but expectations can change as new data emerge.