BNP Paribas economist calls for three Fed rate hikes as inflation refuses to cool

The Federal Reserve spent much of 2025 cutting rates. BNP Paribas now thinks the central bank will need to take all of that back, and then some. Isabelle Mateos y Lago, BNP Paribas’ group chief economist, has outlined a revised forecast calling for three consecutive rate hikes beginning in December 2026. The projection effectively reverses the three rate cuts the Fed delivered in 2025, a policy U-turn driven by stubbornly elevated inflation and a labor market that refuses to soften. The numbers making the Fed’s job harder The July 2026 Consumer Price Index came in at 3.4% year-over-year for headline inflation, with core inflation sitting at 2.5%. Both figures remain well above the Fed’s 2% target. The upcoming August CPI report, scheduled for release on September 11, is expected to land somewhere in the 3.3% to 3.4% range. That reading will arrive just days before the Federal Open Market Committee meets on September 15-16, making it one of the most closely watched data prints of the year. Markets are already positioning for action. Futures pricing currently reflects roughly 70% odds of a 25 basis point rate hike at the September FOMC meeting. The labor market has been the other tho...