Tom Porcelli, Wells Fargo's chief economist, expects the Federal Reserve to keep its benchmark rate at 3.50%–3.75% through 2026. That puts him at odds with a market that's increasingly betting on hikes. Porcelli argues that today's inflation is driven by tariffs and energy prices — supply shocks that higher rates won't fix.
The supply-shock argument
Porcelli's case rests on the idea that the Fed's tools are useless against the current price pressures. Tariffs and energy costs are supply-side problems, he contends, not demand running too hot. Raising rates, he says, isn't costless — it would hit growth without doing anything to curb those prices.
His inflation math backs that up. Core CPI is running near 2.5% overall, and about 2.2% on a three-month annualized basis — close enough to the Fed's 2% target that he doesn't see an urgency to tighten. He also notes that core CPI and core PCE have diverged recently because of different weights, which muddies the signal for policymakers.
The market's hawkish drift
Not everyone sees it that way. Polymarket odds of a 2026 Fed rate hike sit near 55%, down from a peak of 78% in late July but still a coin flip. CME FedWatch data tells a similar story: a 55.6% probability of a hold at the September 16 FOMC meeting, but hike odds jump to 59.2% by October and 77.1% by December.
Bank of America forecasts three hikes totaling 75 basis points. PIMCO has warned that rate cuts would prove counterproductive. Kansas City Fed's Jeffrey Schmid has argued for higher rates, and three policymakers dissented at the July FOMC meeting in favor of an increase.
The Fed has held its benchmark rate all year, but the dissenters and the futures market suggest pressure is building.
The September 16 test
That's why the September 16 FOMC decision is the next real test. If the Fed holds again, it'll signal that Porcelli's contrarian call has traction inside the building. If it hikes, the market's hawkish drift wins — at least for now.
Either way, Porcelli's argument that rate increases are a blunt instrument against tariff- and energy-driven inflation will get a live trial.
