Federal Reserve: Divided hawks shape late-2026 hike risks – Societe Generale

Societe Generale’s Jan Groen highlights a divided Federal Reserve, with a larger ‘keep-on-hold’ camp waiting for core PCE inflation data in 2H 2026 before backing rate hikes. Groen expects the Fed to keep the Fed funds rate unchanged this year, but sees a sizeable risk of rate increases starting from the December FOMC meeting, contingent on core PCE outcomes.

FOMC split and data-dependent path

"The minutes of the July FOMC meeting painted a similar message of divided hawkishness as in the June meeting minutes. The FOMC remains divided in two camps with varying degrees of hawkishness, with the larger one content to stay on hold until core PCE inflation data over the second half of the year has convinced them that the time of rate hikes has come."

"Based on the above considerations, our view remains of a Fed that remains on hold this year, but with a notable risk of rate hikes starting at the December meeting."

"When it comes to the outlook for monetary policy beyond the July meeting it is the data that will determine whether we get a majority that support rate hikes this year, in particular, as per the minutes, "many participants assessed that policy tightening would likely be necessary if inflation did not decline …" and "some participants commented that financial conditions might not currently be sufficiently restrictive to facilitate a return of inflation to 2 percent.""

"A change in our call towards those rate hikes will be a function of the strength of core inflation in the inflation reports for August-October."

"However, there is a very sizeable risk that rate hikes will start at the December FOMC meeting, and a potential change in our Fed call in that direction will be function of the pace core PCE inflation implied by the inflation reports for August through October."