Traders rule out exactly three Fed rate hikes, with two the likeliest total

The Federal Reserve left interest rates unchanged on Wednesday, with two officials dissenting in favor of a hike, according to the central bank's statement. The Federal Open Market Committee held its target range at 3.75% to 4.00%. Lisa Cook and Beth Hammack dissented in favor of a quarter-point increase. The statement said the committee wanted more information before deciding on the appropriate policy stance.

Traders treat exactly three Fed rate hikes in 2026 as ruled out, though the question has not formally resolved. Bets on that outcome had been a long shot for weeks and fell to close to zero on Wednesday afternoon. The reason for that final drop is not clear. It came before the Fed announced its hold later that day, so the decision does not explain it, and no other cause has been identified.

The slide was gradual before it was sudden. Bets on three hikes were already unlikely in mid-October, then fell sharply on Oct. 16. They kept sinking through the following two weeks, with small declines on most days, before the late plunge on Wednesday.

Two hikes is the likeliest total, according to bets across related questions. Traders' central expectation is two hikes, within a range of one to two. A single hike looks unlikely and two looks likely, a split that has barely changed since this story began. For December, traders' central expectation is a quarter-point increase, within a range of no change to a quarter-point rise. For the end of 2026, their central expectation for the Fed's benchmark rate is 4.25%, within a range of 4% to 4.25%.

The Fed's September 16 statement recorded a quarter-point hike, the first since 2023. Under the question's terms, a hike of less than 25 basis points counts as one, and a 50-basis-point hike counts as two. Emergency hikes count too. Reaching exactly three would require two more hikes before year-end, and only one scheduled meeting remains.

The Fed's next meeting is December 8-9, its last scheduled gathering of the year. The Bureau of Economic Analysis reported Thursday that September inflation, measured by the PCE index, ran at 3.6% from a year earlier, with the core measure at 3.1%. Further inflation and employment data will inform the December decision.