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 thorn in the dovish case. May 2026 nonfarm payrolls surged by 172,000, more than double the 85,000 economists had expected. Unemployment held steady at 4.3%. BNP Paribas expects unemployment to drift toward 4% by year-end, which would give the Fed even more cover to prioritize inflation-fighting over employment concerns.

Why the reversal matters

Part of the inflationary pressure traces back to geopolitics. The ongoing US-Iran tensions have kept energy prices elevated, feeding through to transportation costs, manufacturing inputs, and ultimately consumer prices.

Mateos y Lago has emphasized that recent inflation trends leave the Fed with little room for patience. When headline inflation runs 1.4 percentage points above target and the labor market keeps delivering upside surprises, the textbook response is tighter policy.

BNP’s call stands out partly because it’s more aggressive than the broader consensus. While markets are pricing in at least one hike, the full three-hike scenario implies the Fed will need to sustain a tightening campaign well into 2027.

What higher rates mean for risk assets

Bitcoin and the broader digital asset market have historically been sensitive to rate expectations. The 2022-2023 tightening cycle sent crypto into a prolonged winter. Higher rates strengthen the dollar, increase the opportunity cost of holding non-yielding assets, and generally compress risk appetite.

The digital asset ecosystem is more institutionalized than it was during the last tightening cycle, with spot ETFs, regulated custody solutions, and corporate treasury allocations providing structural demand.

The September CPI print on September 11 will be the next major catalyst. A reading at the high end of the 3.3% to 3.4% forecast range would likely cement the September hike and push markets to price in additional tightening. With a 70% probability of a September hike already baked in, the real volatility will come from any signals about whether the Fed plans to keep going after that.