Financial markets and professional forecasters have rarely disagreed so sharply about where US interest rates are heading. According to new analysis from Prometeia, futures prices now imply a Fed funds rate of close to 4.7% by the end of 2028, having topped 4.9% at the end of September, more than a full percentage point above what analysts expect.

In theory, without risk premiums, implied rates should mirror the policy path the market considers most likely, and therefore match the views of the analysts and banks trading those futures. Prometeia’s research shows this is not happening. The gap is around 50 basis points against the Reuters survey for end-2027 and widens to roughly 130 basis points against the New York Fed’s Survey of Market Expectations for end-2028. Even the FOMC’s own September projections, at 3.9% for 2028, sit more than 85 basis points below market pricing.

Prometeia highlights two puzzling features. The size of the gap is unusual for a two-year horizon where both sides share the same information, and the divergence grows with maturity, with near-term measures almost identical. A similar pattern has appeared in ECB implied rates.

Prometeia tests and largely dismisses the obvious explanations. Inflation swaps and analyst forecasts both place 2027 and 2028 inflation below 3%, although the firm notes markets may agree on the destination but not the route, assuming inflation is stickier and needs tighter policy to tame. A fiscal risk premium linked to US debt concerns, which helped push the 10-year Treasury to 5% in September, should weigh on long-term yields rather than short-term rate expectations, it said.

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