BMO Senior Economist Jennifer Lee expects the Federal Reserve to hold interest rates steady for the rest of 2026, pushing the first cuts into late 2027. The forecast lands as the 20-year Treasury yield climbs to 5.26%, with a recent auction showing softer-than-expected demand for long-dated debt.
The Federal Reserve isn't touching rates anytime soon. BMO Capital Markets Senior Economist Jennifer Lee expects the central bank to hold rates exactly where they are through the rest of 2026, with the first cuts not arriving until late 2027.
A new chair, the same patience
The call comes shortly after Kevin Warsh, nominated by President Trump, was confirmed and sworn in as Fed Chair on May 22, 2026. New leadership often raises questions about a shift in direction, but Lee's timeline points to continuity rather than change.
BMO's outlook envisions yields averaging around 4.25% in a post-cut environment, whenever those cuts eventually arrive — a number that implies gradual easing rather than an aggressive pivot. Lee also flagged the conflict in Iran as a complicating factor for the Fed's calculus, since geopolitical instability can jolt energy prices and feed into inflation readings.
Yields keep climbing at the long end
While the Fed holds short-term rates, the long end of the Treasury curve is already moving. The 20-year yield reached 5.26% by August 14, a level up roughly 0.36 percentage points from a year earlier.
A July 22 auction of 20-year debt cleared $13 billion at a yield of 5.163%, with a bid-to-cover ratio of 2.64, roughly in line with the prior ten auctions' average of 2.65. But a separate, larger $16 billion auction drew demand that fell below expectations, pushing long-end yields higher still.
What steady rates and rising yields mean for markets
A prolonged rate hold paired with a steepening curve keeps bond yields elevated by recent historical standards, making traditional debt instruments more attractive than during the near-zero rate era. Lee's timeline pushes any definitive shift toward easing well into the second half of 2027, with Fed meeting schedules through early 2027 the key dates to watch for the first sign of that shift.
Sources: Crypto Briefing, Crypto Briefing
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