ING expects one more 25bp increase from both the Fed and ECB before a pause. Fed-funds futures and euro money markets are pricing a substantially higher 2027 policy path, turning the debate from “will December happen?” into how persistent the energy-driven inflation shock becomes.
ING now expects the Federal Reserve and European Central Bank to raise rates once more in December. That would take the Fed’s target range from 3.75%-4.00% to 4.00%-4.25% and the ECB deposit rate from 2.50% to 2.75%.
The December calls themselves are no longer the most interesting part of the forecast.
Fed policymakers are already close to that US outcome. Twelve of 18 FOMC participants put the appropriate end-2026 funds-rate midpoint at 4.125%, four at 4.375% and two at the current 3.875%.
Markets have travelled further.
At roughly 13:45 BST on September 18, the June 2027 30-day Fed-funds futures contract was quoted at 95.395, implying an average effective federal-funds rate of about 4.605% for that month. The current target range is 3.75%-4.00%, with a 3.875% midpoint.
ING’s differentiated US view is therefore the plateau after December. Its base case leaves policy around 4.125%; the futures curve is pricing a rate roughly half a percentage point higher by mid-2027.
Europe shows an even wider 2027 gap
The ECB raised its deposit rate to 2.50% on September 10. Staff now project headline inflation of 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028. The Governing Council has retained its meeting-by-meeting approach and has explicitly avoided committing to a predetermined rate path.
ING sees another December increase but no extended hiking cycle in 2027 if the Strait of Hormuz reopens, energy prices decline and second-round wage and services inflation remains contained.
Money markets are assigning a much higher policy rate.
At 11:51 BST on September 18, Reuters reported that markets priced the ECB deposit rate at 2.86% for December and 3.39% by November 2027. A full 25bp increase was priced by year-end, together with roughly a 50% probability of another. Earlier in the week, late-2027 pricing had reached about 3.5%.
ECB President Christine Lagarde has resisted a mechanical link between higher energy prices and policy rates, arguing that the Governing Council also has to consider the consequences for consumption, growth and underlying inflation.
The gap is now explicit. ING sees 2.75% followed by a pause; the September 18 money-market curve put the deposit rate around 3.39% by November 2027.
The trade is about persistence, not December
ING has also lifted its year-end US 10-year yield forecast to around 5.1% and sees a risk of an interim move into the 5.25%-5.5% range. Its reasoning includes fiscal issuance, long-duration hyperscaler borrowing and energy pressure as well as the policy rate.
That makes the long end a separate problem. The Fed could stop tightening while term premium and bond supply keep 10-year yields high.
The cleaner disagreement is at the front of the curve.
ING is effectively betting that the energy shock does not become a durable wage-and-services inflation process. Current futures and money-market prices require considerably more tightening if that assumption fails.
December would confirm that central banks remain willing to respond to the shock. The larger investment question is whether the tightening ends there. On September 18, ING says broadly yes; the rates curves say no.