For much of this year, Wall Street’s debate centered on how many times the Federal Reserve would cut interest rates. Now, one major global bank is making the opposite bet.

BNP Paribas, France’s largest bank, says the Fed’s next move is likely to be a rate increase, not a cut. In a recent Markets 360 analysis, the bank reversed its prior expectation of steady policy and now forecasts that the Fed will begin unwinding the three rate cuts delivered in 2025 through a series of hikes starting in December 2026.

The forecast stands in sharp contrast to many economists and investors who continue to expect lower rates ahead.

Why BNP Thinks Rates Are Going Higher

The bank’s case rests largely on the strength of the U.S. labor market.

According to the latest employment report, nonfarm payrolls increased by 172,000 jobs last month, roughly double economists’ expectations of about 85,000. Meanwhile, the unemployment rate held steady at 4.3%.

That resilience matters because the Fed’s three rate cuts in 2025 were intended to protect a labor market that policymakers feared was weakening. If hiring remains strong, BNP argues, the Fed may have less reason to support growth and more reason to focus on inflation.

Guneet Dhingra, Head of U.S. Rates Strategy at BNP Paribas, said the firm sees rising inflation risks combined with continued labor-market strength, a combination that could force policymakers to remove some of the stimulus added last year.

The bank also points to geopolitical risks, including the ongoing Iran-Israel conflict, which has periodically driven energy prices higher and could add further inflationary pressure.

Looking Back to 1999

BNP Paribas says today’s environment resembles a period from more than two decades ago.

The bank believes the Fed could follow a pattern similar to 1999, when it reversed emergency rate cuts made during the financial turmoil surrounding the Long-Term Capital Management crisis in 1998.

In that case, the central bank cut rates to stabilize markets and then quickly reversed course once conditions improved.

BNP expects a similar sequence now, forecasting three consecutive rate hikes beginning in December and potentially earlier if inflation accelerates or labor-market conditions strengthen further.

The bank also projects unemployment could gradually decline toward 4% by year-end, giving policymakers additional room to prioritize inflation control.

Wall Street Isn’t Convinced

Not everyone agrees.

Citigroup continues to forecast three rate cuts, beginning in September, arguing that labor-market weakness could emerge later this year.

Goldman Sachs economists have also pushed back on the idea of rate hikes, saying stronger jobs data alone is unlikely to trigger a policy reversal.

The result is one of the widest disagreements among major Wall Street firms in years.

Investors, meanwhile, are becoming less certain that rate cuts are coming.

Prediction market Polymarket recently showed roughly a 52% probability that the Fed raises rates before year-end, while CME FedWatch data pointed to approximately a 43% chance of a hike by December.

What It Means for Consumers

If BNP Paribas is correct, Americans could face higher borrowing costs in 2027.

Federal Reserve rate increases typically push up the cost of:

• Mortgages
• Auto loans
• Credit cards
• Business borrowing

At the same time, higher rates generally benefit savers by increasing yields on savings accounts, certificates of deposit, and money-market funds.

For households planning to purchase a home or finance a vehicle, the difference between rate cuts and rate hikes could translate into thousands of dollars over the life of a loan.

The Bottom Line

The next major test comes at the Federal Reserve’s June 16–17 meeting, the first under new Fed Chair Kevin Warsh.

Virtually no one expects a rate increase this month. The real debate is what comes next.

For now, strong job growth, stubborn inflation concerns, and geopolitical uncertainty are forcing investors to reconsider an assumption that dominated markets for much of the past year: that the Fed’s next move would automatically be lower rates.

BNP Paribas is betting the opposite.

JBizNews Desk — Markets

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