Based on current macro regime conditions and federal funds rate's historical behaviour in similar regimes, the model projects 3.63% by 2026-12-31 ( -0.3% from 3.64% today). The 68% confidence range is 1.47% to 5.80%; the wider 95% range is -0.61% to 7.87%. Methodology below the headline.
Federal Funds Rate Forecast 2026
Quantitative analysis from 299 observations of Federal Funds Rate history, joined to four universal macro regime classifications. Numbers are computed, not narrated.
Performance by Window[02]
| WINDOW | N | ANN RET | ANN VOL | RET/VOL | HIT % | TOTAL |
|---|---|---|---|---|---|---|
| 1Y | 13 | -15.95% | 6.59% | -2.42 | 0.0% | -15.94% |
| 3Y | 36 | -10.67% | 7.00% | -1.52 | 8.6% | -28.06% |
| 5Y | 61 | 120.42% | 99.97% | 1.20 | 33.3% | 5100.00% |
| 10Y | 121 | 25.69% | 84.55% | 0.30 | 45.0% | 883.78% |
| All | 299 | -0.35% | 68.69% | -0.01 | 42.3% | -8.31% |
Annualized total return = (1 + total)^(1/years) - 1. Ret/Vol is the annualized return divided by annualized volatility (Sharpe-equivalent without risk-free subtraction). Hit % = pct of single periods that were positive.
Where We Are Now[03]
Forward Returns by Macro Regime[04]
How Federal Funds Rate has performed historically conditional on the prevailing macro regime. The current bucket is highlighted; +1Y averages drive the headline signal above.
| REGIME BUCKET | N | +30D | +90D | +1Y AVG | +1Y MED | HIT % |
|---|---|---|---|---|---|---|
| Low (<15) | 65 | 3.15% | 10.29% | 41.88% | 33.33% | 66.2% |
| Normal (15-25) | 91 | 3.43% | 25.38% | 271.54% | 0.00% | 48.8% |
| Elevated (25-40) | 32 | 2.42% | 46.57% | 251.17% | 11.11% | 50.0% |
| Extreme (>40) | 3 | n/a | n/a | n/a | n/a | n/a |
| REGIME BUCKET | N | +30D | +90D | +1Y AVG | +1Y MED | HIT % |
|---|---|---|---|---|---|---|
| Inverted (<0bps) | 27 | 6.93% | 29.89% | 52.02% | -5.90% | 40.7% |
| Flat (0-100bps) | 63 | 6.95% | 50.48% | 251.13% | 25.96% | 59.6% |
| Steep (>100bps) | 100 | -0.10% | 6.21% | 178.98% | 26.67% | 57.0% |
| REGIME BUCKET | N | +30D | +90D | +1Y AVG | +1Y MED | HIT % |
|---|---|---|---|---|---|---|
| Tight (<350bps) | 25 | 5.75% | 31.88% | 856.39% | 40.59% | 57.9% |
| Normal (350-500bps) | 45 | 8.07% | 65.99% | 327.80% | 30.00% | 59.1% |
| Stressed (>500bps) | 18 | 11.36% | 55.90% | 121.24% | 143.24% | 88.9% |
| REGIME BUCKET | N | +30D | +90D | +1Y AVG | +1Y MED | HIT % |
|---|---|---|---|---|---|---|
| Weak (bottom tercile) | 34 | -4.41% | -16.63% | 106.44% | -43.35% | 32.4% |
| Neutral (middle) | 39 | 1.72% | 41.38% | 477.92% | 23.08% | 55.9% |
| Strong (top tercile) | 77 | 7.39% | 40.35% | 159.43% | 30.00% | 61.8% |
Forward returns are forward-looking from each historical observation in the bucket; +252d corresponds to one trading year. Buckets with fewer than 5 forward-return observations are reported as n/a. These are conditional historical averages, not forecasts.
Lead-Lag Relationships[05]
For each universally-recognised leading indicator, the lag at which the daily-return correlation peaks. Positive lag means the anchor leads Federal Funds Rate; negative means it lags.
| ANCHOR | ROLE | PEAK LAG | PEAK CORR | ZERO-LAG | RELATIONSHIP |
|---|---|---|---|---|---|
| Initial Jobless Claims | Labor leader | +23d | 0.535 | -0.349 | leads target by 23d |
| HY OAS Spread | Credit risk leader | +25d | 0.316 | -0.131 | leads target by 25d |
| 10Y Treasury Yield | Discount-rate driver | +1d | 0.261 | 0.226 | coincident |
| 10Y-2Y Yield Spread | Recession leader | -5d | -0.249 | -0.003 | lags target by 5d |
| VIX | Volatility leader | +3d | 0.236 | -0.073 | coincident |
| Trade-Weighted Dollar | FX driver | +48d | 0.204 | -0.085 | leads target by 48d |
| Baa-10Y Spread | Credit risk (slow) | 0d | -0.195 | -0.195 | coincident |
| NFCI | Financial conditions | +11d | -0.182 | -0.026 | leads target by 11d |
| Copper | Global growth proxy | +40d | -0.142 | 0.105 | weak |
| U-Mich Consumer Sentiment | Survey leader | -21d | 0.131 | 0.042 | weak |
Pearson correlation of daily returns over up to 25 years of overlapping history, searched across a ±60-day lag grid. Indicators classified as “weak” don't have meaningful predictive power at daily resolution; many of these (yield curve, NFCI, sentiment) lead at monthly/quarterly horizons instead.
Historical Analogs[06]
Periods where Federal Funds Rate sat at a similar percentile rank to today, with what happened over the next 30 / 90 / 252 trading days. Analogs are clustered to avoid double-counting nearby dates.
| DATE | VALUE | +30D | +90D | +1Y |
|---|---|---|---|---|
| Aug 1, 2022 | 2.3300 | 9.87% | 75.97% | 128.76% |
| Sep 1, 2019 | 2.0400 | -10.29% | -24.02% | -95.59% |
| Jun 1, 2019 | 2.3800 | 0.84% | -23.11% | -96.64% |
| Mar 1, 2019 | 2.4100 | 0.41% | -0.41% | -73.03% |
| Dec 1, 2018 | 2.2700 | 5.73% | 6.61% | -31.72% |
Worst Historical Drawdown[07]
Largest Single-Period Moves[09]
- Mar 1, 2022150.00%
- May 1, 2022133.33%
- Dec 1, 2015100.00%
- Apr 1, 202265.00%
- Jun 1, 202060.00%
- Apr 1, 2020-92.31%
- Nov 1, 2008-59.79%
- Dec 1, 2008-58.97%
- Mar 1, 2020-58.86%
- Oct 1, 2008-46.41%
Calendar-Month Seasonality[10]
Average single-period return aggregated by the calendar month in which the period ended.
| MONTH | AVG RETURN | HIT % | N |
|---|---|---|---|
| January | 1.05% | 40.0% | 25 |
| February | 3.79% | 60.0% | 25 |
| March | 4.97% | 40.0% | 25 |
| April | 0.85% | 60.0% | 25 |
| May | 4.97% | 33.3% | 24 |
| June | 7.73% | 58.3% | 24 |
| July | 2.08% | 52.0% | 25 |
| August | 3.11% | 52.0% | 25 |
| September | -2.06% | 24.0% | 25 |
| October | -2.47% | 24.0% | 25 |
| November | -3.40% | 28.0% | 25 |
| December | 4.19% | 36.0% | 25 |
N = 299 OBS · GENERATED 2026-05-18 08:30Z
Forecast Approach
scenario weighted: We aggregate probability-weighted outcomes across active tracked scenarios, each with historical base rates and current heat scores. The projection above is the sample-weighted central estimate across current macro regime anchors; the scenario list below adds qualitative context.
Consensus source: Fed dot plot and futures market
Key Drivers & Risks
- •Federal Reserve policy
- •Inflation expectations
- •Economic growth
- •Global yield differentials
- •Treasury supply
Historical Volatility
Moderate: typically 50-150bps annual range
Scenarios That Affect This Forecast
How Fed Funds Forecasts Have Held Up Historically
The Fed's own dot plot has the worst track record of any major rate forecast. The Fed has consistently under-predicted the policy rate it itself was about to set, with the 2022 dots embarrassingly low versus the realized 5.25% peak. Year-ahead Fed funds forecasts from the dots have missed the realized end-of-year level by 100bp+ in median absolute terms over 2018-2025.
Market-implied paths from Fed funds futures have done better than the dots on direction but similarly poorly on the timing of pivots. The 2024 March-cut narrative (priced in heavily through October 2023) was wrong; the actual first cut came September 2024.
Regime Sensitivity for Fed Funds
Fed funds is the policy rate, set by the FOMC rather than determined by the regime classifier. The regime model reads the funds rate as a state variable rather than predicting it. Cuts are bullish for risk assets in goldilocks regimes (the 2019 mid-cycle adjustment) and ambiguous in stagflation regimes (the cuts may be too late or too few).
In April 2026 with the funds rate at 3.50-3.75% and the FOMC holding April 29 with 4 dissents wanting cuts, the regime conditional reads as cuts-probable but data-dependent. CPI at 3.3% headline is the constraint; until inflation prints below 3% reliably, the Fed has political and economic cover to delay cuts.
What Drives Fed Funds Forecast Errors
Three issues drive Fed funds forecast errors. First, the Fed's reaction function shifts within cycles. The 2022 "transitory" framing gave way to "front-loaded" hiking; the 2024-2026 cycle has been "data-dependent" with shifting interpretation of what the data implies.
Second, financial-stability events can force out-of-sequence moves. The March 2023 SVB episode produced an emergency BTFP facility but didn't shift the rate path; future stability events could.
Third, political pressure on the Fed has intensified with Trump 2.0 administration. Verbal pressure for cuts has been explicit; the FOMC has so far resisted but the political-pressure regime is itself a wildcard the model doesn't capture.
How to Use This Forecast in Practice
For Fed funds, the most-actionable signal is the FOMC voting record (dissents, dot-plot changes) plus the SEP forecasts (PCE, unemployment, GDP). When these align with cuts, the path is high-conviction; when they conflict, expect path volatility.
The cleanest cross-check is the SOFR futures curve out 12-24 months. Sustained pricing of cuts that the Fed denies typically resolves toward the market path within 2-3 quarters. The 68% band on Fed funds forecasts should be treated as wider than the dots suggest because of the historical pattern of dot-plot under-prediction.
Frequently Asked Questions
What factors could push Federal Funds Rate higher?▾
The primary drivers that tend to lift Federal Funds Rate depend on the current macro regime. Interest rates set the price of money and ripple through every asset class. An inverted yield curve has preceded every U.S. recession since the 1960s, making this the single most-watched corner of fixed income. Monitoring rate differentials, real yields, and forward expectations helps traders anticipate risk-on or risk-off regime shifts. Convex tracks these drivers live across the Yield Curve & Rates category and flags when multiple forces align in the same direction. See the "Key Drivers & Risks" section on this page for the current list, and check the regime dashboard for how the macro backdrop is currently tilted.
What factors could push Federal Funds Rate lower?▾
The same transmission channels that drive Federal Funds Rate higher operate in reverse when conditions flip. The risk drivers listed above map directly to scenarios that, if triggered, would pull this metric in the opposite direction. Convex aggregates these into a scenario-weighted probability distribution rather than a point forecast, so the magnitude depends on which scenarios activate.
Where does consensus see Federal Funds Rate heading?▾
Rather than publish a point target that goes stale the day after release, Convex assembles consensus from the macro regime classification, active scenario probabilities, and historical base rates. Point forecasts from banks and strategists are worth reading for context, but they typically cluster around the consensus and miss the tail events that actually move markets. The scenario-weighted approach here captures that tail risk explicitly.
What is the historical range for Federal Funds Rate?▾
Historical ranges for Federal Funds Rate vary dramatically by regime. A level that is extreme in Goldilocks can be routine in Stagflation, and vice versa. The Historical Volatility section on this page describes the typical range and regime-specific behavior. For the full multi-decade history, visit the Federal Funds Rate chart page, which includes selectable time ranges up to five years and downloadable data.
How often is the Federal Funds Rate forecast updated?▾
This forecast page recalculates whenever the underlying data or regime classification changes, typically within hours of new data releases. The scenario probabilities refresh daily as the macro state is regenerated. Specific drivers listed on this page reflect the current state of the Convex regime engine, not static historical assumptions.
Is this forecast actionable for trading?▾
Convex forecasts are informational and educational. They describe probability distributions and regime-conditional paths rather than specific entry and exit levels. Traders and portfolio managers use them alongside other inputs including position sizing rules, risk management, and their own conviction calibration. They are not investment advice.
Get forecast updates for Federal Funds Rate and related indicators.
Forecasts are model-based projections derived from current regime classification, scenario probabilities, and historical patterns. They are not investment advice. All investments involve risk.