Wells Fargo has revised its economic outlook, raising its expectations for inflation and borrowing costs in 2026 and 2027 as it sees price pressures lasting longer than previously projected.

The bank now expects the Federal Reserve to keep its benchmark federal funds rate in the 3.50% to 3.75% range through the end of 2026. That is a shift from earlier forecasts that had called for modest rate cuts, a view Wells Fargo abandoned after inflation readings repeatedly came in above expectations.

That outlook matters because the federal funds rate serves as a reference point for many borrowing costs across the economy, including business loans, credit cards and other financing tied to short-term rates. If policy stays unchanged for longer, companies and households would continue operating in a higher-rate environment while markets wait for clearer signs that inflation is easing.

Factors Behind the Inflation Outlook

Wells Fargo said its updated forecast is being driven mainly by three supply-side factors: higher energy costs, new tariff policies and ongoing supply-chain disruptions.

The bank said these pressures raise costs by disrupting production and supply rather than by reflecting excessive consumer demand. Tom Porcelli, Wells Fargo’s chief economist, has repeatedly argued that this type of inflation cannot be resolved through higher interest rates alone.

Porcelli reiterated that view in early August, saying tariff measures and oil price swings reflect structural problems that tighter monetary policy cannot fix.

The bank also said demand linked to artificial intelligence expansion is adding to inflation pressures, particularly through stronger demand for labor, raw materials and infrastructure. According to Wells Fargo, that dynamic is helping keep services-sector price growth elevated.

Fed Policy Expectations

Wells Fargo expects the federal funds rate to remain at its current 3.50% to 3.75% target range through the end of 2026. The bank said this marks a clear break from its previous outlook for gradual easing.

It noted that other financial institutions have also scaled back their expectations for rate cuts as inflation has stayed higher than forecast.

The bank said Kevin Warsh, the newly appointed Federal Reserve Chair, is expected to take a cautious and watchful approach to monetary policy. Wells Fargo described his stance as measured and observational, with no clear sign that he will lean toward tightening or easing.

A small number of market observers have suggested that rates could rise later in 2026, but Wells Fargo said that view remains a fringe scenario rather than its base case.

Recent Federal Reserve meetings have reinforced expectations that policy will stay unchanged for now, and market pricing also points to little immediate chance of a shift. Wells Fargo does not expect any major policy move before 2027.

For investors and businesses, the broader implication is not a forecast of faster or slower growth, but a longer stretch of policy stability against a backdrop of elevated inflation. That makes incoming data on prices, energy costs, tariffs and supply conditions especially important for understanding whether the bank’s view continues to hold.

If that outlook proves correct, borrowing costs would remain elevated for businesses that depend on cheaper credit to expand. At the same time, a stable rate environment could give fixed-income investors more certainty, since assets can be priced against a steadier policy backdrop.

Wells Fargo said lower energy costs could still offer some relief in 2027, but it described that benefit as limited. Overall, the bank said the post-pandemic disinflation trend has ended and that persistent inflation is now the prevailing economic reality.