Interest Rate Forecast 2026 and 2027: Fed and 10-Year Yield

Yes, the policy rate is more likely to rise than to fall in the coming months. The Federal Reserve raised the target range for the federal funds rate to 3.75 to 4.00% on 16 September 2026, its first increase since July 2023, with a vote of 12 to 0. In the minutes of that meeting, published on 7 October 2026, most participants judged that another increase "would likely be appropriate by year end".

The Fed's own projections point the same way. In the projections of 16 September, the median for the end of 2026 is 4.1%. Of the 18 participants, 16 expect at least one more step this year and two expect none. For the end of 2027 the median is again 4.1%. That does not rule out cuts during 2027, and some participants project lower rates by then.

Long-term rates have already moved. The 10-year Treasury yield rose from 4.19% on 2 January to 5.31% on 5 October 2026, the highest close since May 2002, according to the U.S. Treasury and the Fed's H.15 data. My assessment: as long as the 10-year yield holds above 4.98%, the trend in long rates stays up.

The chart shows a strong rise since the summer, with a steep last leg in late September. On 22 September the 10-year yield still closed at 4.96%; since 23 September every close has been above the 2023 high at 4.98%. On 5 October it reached 5.31%, on 6 October it closed at 5.27%. All figures are daily closes from the U.S. Treasury par yield curve.

The 2023 high at 4.98% is now the level that has to hold. It capped the yield for almost three years. A break above such an old high often turns it into support, and that is how I read it here. The 5.00% mark sits right next to it.

Above the price, the 2002 high at 5.44% is the next resistance. After that comes the 2001 high at 5.54%. As long as neither level breaks, 4.98% to 5.44% is my orientation range until the Fed meeting on 28 October. The first test is the September consumer price index on 14 October.

A close below 4.98% would weaken the short-term picture. The next stop would then be 4.75%, where the yield closed both July and August. How nervous the bond market is right now can be followed in the MOVE index of Treasury volatility.

The Fed rate decides the short end, and the Fed has turned. After three cuts in late 2025 the range stood at 3.50 to 3.75% for most of 2026. On 16 September the Fed raised it by a quarter point. The statement says the Committee "will deliver price stability" and gives no commitment for the next meetings. The full story is in our article on the Fed rate decision.

The dot plot of 16 September shows how far the Fed expects to go. For the end of 2026, 12 participants see the midpoint of the range at 4.125% (one more hike), 4 participants at 4.375% (two more) and 2 at today's 3.875%. That gives an upper bound between 4.00% and 4.50% at the end of the year, with 4.25% as the most common answer.

My base case is one more quarter point by the December meeting. The minutes speak of "by year end", not of the next meeting, and there are two dates left: 28 October and 9 December. The inflation data in between decide the timing. What futures traders are pricing for each meeting can be checked in the CME FedWatch Tool.

On the monthly chart, the 10-year yield has left a range that held for three years. From November 2022 to August 2026 it moved between the 2023 low at 3.30% and the 2023 high at 4.98%. In October 2025 and again in February 2026 it found its low at 3.97%. The September close at 5.29% is the first monthly close above 4.98% since June 2007.

For the end of 2026 my orientation range for the 10-year yield is 4.75% to 5.54%. The upper end is the 2001 high, the lower end the level of the July and August closes. A year-end close below 4.75% would mean the breakout has failed. A close above 5.54% would open the way to levels last seen in 2000.

The direction depends less on the Fed than on inflation and on how much compensation investors demand for lending long. That extra compensation is the term premium: what investors ask for holding one long bond instead of rolling short ones. Its drivers are listed further down under "What drives interest rates now".

Two levels on the 10-year yield separate the scenarios. They are orientation levels from the chart, not order rules, and each scenario names the data that would make it more likely.

For the end of 2027 the Fed's median stays at 4.1%. That is the same as for 2026, but a year-end figure says nothing about the path during the year, and the spread of views is wider: 8 participants see 4.375%, 6 see 4.125%, three see 3.625% and one sees 3.125%. Four participants therefore project a rate below today's midpoint. Seventeen of the 18 dots fit an upper bound of 3.75% to 4.50%.

For the 10-year yield in 2027 I use 4.44% to 5.54% as orientation. The lower end is the March high and June close of 2026, the upper end the 2001 high. These are chart levels, not a statistical confidence interval. As long as the Fed holds its rate around 4%, I do not expect the 10-year yield to fall back to the lows of 2025 and 2026 at 3.97%. Its PCE inflation projection for 2027 is 2.3%, with core inflation at 2.5%; if that comes true, the case for higher long rates weakens during the year.

Further out, the Fed expects its rate to come down slowly. The medians are 3.9% for 2028 and 3.6% for 2029, and the longer-run rate is 3.2%. For 2029 the views range from 2.9% to 3.9%. These are the Fed's projections from 16 September 2026, not promises.

A simple yardstick links the Fed rate to the 10-year yield. Since 2000 the 10-year yield has stood a median 1.40 percentage points above the Fed funds target, measured over 6,693 trading days. On 6 October 2026 the gap was almost exactly that: 5.27% against a midpoint of 3.875%. If it stayed at 1.40 points, the Fed's longer-run 3.2% would go with a 10-year yield of about 4.60%, and the 2029 median of 3.6% with about 5.00%.

The gap itself moves, which is why my five-year range is wide. From 2009 to 2015 the median was 2.41 points, from 2016 to October 2026 about 0.71. The 4.60% and 5.00% above are only arithmetic on the Fed's own numbers, and the historical gap is no forecasting rule. As a wide band for 2028 to 2031 I use the chart levels 3.97% to 5.54%, the lows of 2025 and 2026 below and the 2001 high above. It is an illustration of the range, not a probability.

The ECB is also raising rates, but from a lower level. It lifted the deposit facility rate to 2.25% in June and to 2.50% in September (decided on 10 September, in force since 16 September 2026). Against the Fed's 3.75 to 4.00%, the gap in policy rates is 1.25 to 1.50 percentage points. The next ECB meeting is on 29 October, one day after the Fed. Details are in our article on the ECB rate decision.

German 10-year yields have risen too, but less. According to the Deutsche Bundesbank, the 10-year federal yield reached 3.69% on 28 September 2026, the highest since April 2011, and stood at 3.55% on 7 October. On 6 October the US 10-year yield was 1.75 points higher (5.27% against 3.52%); on 2 January the gap had been 1.23 points. The two series are calculated differently (US par yield, German yield curve estimate), so the gap is an indicative comparison.

A wider US yield advantage usually supports the dollar. That is one reason why the gap matters for the EUR/USD forecast. For the German side in futures terms, see our Euro Bund future forecast. Both central banks are still raising rates, so I do not expect it to close quickly.