Interest Rate News: Third Quarter 2026

The Federal Reserve held the federal funds target rate steady in the second quarter, keeping the range at 3.50%–3.75% as inflation remained above target and economic activity continued to expand. With new Fed Chair Kevin Warsh signaling less reliance on forward guidance, future rate decisions could depend more heavily on incoming inflation, labor market and growth data.

Term borrowing rates remain volatile as geopolitical tensions, supply chain disruptions and persistent price pressures influence Treasury yields and market expectations. Borrowers shouldn’t assume rates will move lower if global tensions ease; instead, they may benefit from evaluating known term-rate opportunities while borrowing costs remain within historical ranges.

Federal Funds Rate Update

• The FOMC met twice in the second quarter, and after each meeting the committee held rates steady, keeping the Federal Funds Target Rate (Fed Funds) in the 3.50%–3.75% range. At the end of July, the Fed issued a statement that, despite increased uncertainty due to conflict in the Middle East, economic activity is solidly expanding. The FOMC also noted inflation remains elevated relative to their 2% goal, reflecting supply shocks driving price increases in certain sectors like energy. The committee said it will continue to strive for price stability.
  
  
• Following the FOMC's unanimous 12-0 decision to hold rates steady at its June meeting, investors heard from new Fed Chair Kevin Warsh for the first time. Warsh announced five new task forces, with individuals from both within and outside the economics profession, who will review how the FOMC sets policy. The groups will focus on Fed communications, the Fed's balance sheet, augmenting economic indicators with private data to reduce reliance on government-based statistics, studying technology’s impact on productivity and jobs, as well as the Fed's inflation framework. Warsh also emphasized markets shouldn’t expect forward guidance but should, instead, focus on incoming economic data and task force findings.
  
  
• As of this writing, the FOMC assigns an 82% probability of at least one 25 bp rate hike by year’s end.
  
  
• Developments in geopolitical conflicts and economic data released during the third quarter should provide additional clues regarding the future path of monetary policy. The new Fed Chair reiterated formal forward guidance won’t play a significant role in Fed communications.

Term Borrowing Rate Update

• The FOMC is responsible for monetary policy and influences short-term interest rates. However, multiple factors that are difficult to predict continue to affect interest rates, including elevated geopolitical tensions and supply chain disruptions associated with the Strait of Hormuz, a critical artery for global energy and goods flows.
  
  
• Investors and economists are concerned that factors other than just supply shocks are driving inflation. Cleveland Fed President Beth Hammack recently noted that she is beginning to see demand-side inflation pressures emerge as well, with businesses reporting broader pricing pressures and consumers growing increasingly frustrated by persistently high prices.
  
  
• Longer-dated Treasuries pushed to recent highs during the quarter. The 30-year U.S. Treasury yield reached 5.27%, its highest level since 2007. The 10-year U.S. Treasury yield also surpassed 4.70%, rising approximately 79 bps from its February lows.
  
  
• The 2-year U.S. Treasury yield also moved to a new range of 4.00%-4.20% as the market began pricing ahead of a possible September 2026 rate hike. This range appears to be the new normal, persisting through changing economic forecasts, fiscal policy shifts and equity market rallies and corrections.
  
  
• While past performance doesn’t indicate future results, borrowers shouldn’t assume term rates will be lower as the Middle East conflict de-escalates. Instead, they should consider taking advantage of known term rates that remain within historic ranges.

This “Interest Rates News Update” is a quarterly communication. Stay informed. Contact a Synovus Commercial Banker or stop by one of our local branches for more details.

Foster Olson is an Associate of Synovus’ Capital Markets-Derivatives. Olson’s focus is hedging rates.