With the FOMC deciding on Wednesday, the market has largely settled on a hold after September's rate hike, with the odds of another 2026 hike briefly spiking to about 50% after a hot CPI print before falling back below 10%. The hold is the base case. The question that is not yet priced in is whether one more hike follows.
Traders on prediction markets have the probability of two 2026 hikes at roughly 72%, a number that sits uncomfortably against the Fed's own communications. The disconnect is a feature, not a bug: the probability function is driven by the tail, not by the modal case. It is the difference between what the statement will say and what the market has to price for the next move. For bond investors, that gap defines the risk to the short end; for equities, it defines the risk to the re-rating that has carried the year.
The equity market has reacted to the hold as if it is the last one. The 10-year yield hovering near 5% is a market that has already priced a higher-for-longer path. If the Fed's statement does not explicitly rule out a third move, the yield is likely to test new ground even on the hold. The decision is not the price. The statement is.
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