Where is the base rate now, and what is the market pricing?
The Federal Reserve held its target range at 3.50% to 3.75% on 29 July 2026, its fifth consecutive hold, on a 9 to 3 vote. All three dissents were in favour of a rate rise, the first time since September 2016 that three policymakers dissented in the same direction (FOMC statement, 29 July 2026; Bloomberg, 29 July 2026).
Spot pricing follows from that. One-month CME Term SOFR is 3.65% and three-month is 3.76% (CME, 4 August 2026), with overnight SOFR at 3.66% (New York Fed, 4 August 2026). The 11 basis point gap between the one-month and three-month tenors is not noise. It is the term curve pricing a rise inside the next quarter, and it is corroborated by roughly 62% implied probability of a 25 basis point hike at the 15 and 16 September meeting (CME FedWatch via MacroMicro, 4 August 2026).
Further out, the three-month SOFR forward curve prices 3.90% at the end of 2026 and 4.04% at the end of both 2027 and 2028 (Blue Gamma, 4 August 2026). That is higher than today, and higher than the Federal Reserve's own 2027 median projection of 3.6% (Federal Reserve Summary of Economic Projections, 17 June 2026). The June projections moved the 2026 median up 40 basis points and the 2027 median up 50 basis points against March, and nine participants projected at least one rise in 2026.
The survey evidence sits in the same place. A Reuters poll of 104 forecasters returned a median call of no change through the end of 2027, but 44 of the 67 who answered the question, or 66%, described the chance of a 2026 rise as high, reversing the prior month's reading (Reuters, 21 July 2026). The consensus is a hold. The distribution around it has moved decisively toward higher.
What does a rate move actually do to your coverage?
It does not change your leverage at all, and it changes your coverage immediately. Leverage is measured off principal, which a rate move does not touch. Coverage is measured off cash interest, which is repriced on every reset date on the floating portion of the stack. A borrower can go through a full rate cycle with an unchanged leverage ratio and a covenant problem.
Work it at a stated structure. Take a business with $10m of EBITDA carrying $30m of total debt, all floating, priced at SOFR plus 500. At a one-month Term SOFR of 3.65% that is 8.65% all-in, or roughly $2.6m of cash interest, giving interest cover of about 3.9 times. Add 100 basis points to the base rate and interest goes to about $2.9m and cover falls to about 3.5 times. Nothing about the business changed. Roughly four tenths of a turn of cover left the model.
That arithmetic is ours, not a published series. It uses a stated 3.0x structure at a spread inside the current non-bank range, assumes the whole stack floats, and ignores amortization, fees and any hedge. Change the assumptions and the number changes. What does not change is the direction and the mechanism: on floating debt, base rate moves land on the coverage line and nowhere else.
The market-wide starting point for that arithmetic is thinner than most owners assume. Median interest coverage across 2,785 middle-market borrowers and more than $1.2 trillion of debt is 1.6 times (KBRA, Q2 2026 Middle Market Compendium, twelve months ended 30 June 2026, published 28 July 2026). Fixed charge coverage in a lower-middle-market portfolio sat at 1.3 times in the first quarter of 2026, its third consecutive quarter at that level, up from a 1.1 times trough in the first quarter of 2024, with the share of companies below 1.0 times down to 19.5% from a peak of 40.9% (Lincoln International, as of 31 March 2026). The recovery is real and the cushion is still narrow.
“A borrower asks what the Fed does in September. The number that reprices a capital structure is where the curve settles, because that is the rate the refinancing clears at. The next meeting moves a quarter of interest expense. The terminal rate moves the whole facility.”
Whose 2027 forecast should a borrower plan against?
None of them individually, because the named calls disagree by about 100 basis points on the same year. One house projects two cuts in 2027 to a 3.00% to 3.25% range. Another projects the next move is a rise, pulled forward to December 2026. A third projects two rises in 2026 and then a prolonged pause near 4.1%. A fourth projects a hold at the current range through the end of 2027, and a fifth projects 75 basis points of increases in 2026.
That spread is the planning input. It says the professional forecasting community cannot narrow the 2027 base rate below a range roughly a full point wide, which means a borrower running a single-point rate assumption in a model is expressing more confidence than any bank research desk currently holds.
The useful discipline is to run the capital structure at the top of that range rather than the middle. If the structure services at 4.1% and clears its covenants there, the rate path stops being a risk and becomes an input. If it only services at the median dot, the borrower is carrying an unhedged view on monetary policy alongside an operating business, usually without having decided to.
The forward curve is the closest thing to a market-clearing answer, and it currently sits above both the Federal Reserve's own median projection and most of the named cut calls. Where the market prices and the committee projects disagree, the borrower pays the market.
| House | 2027 call | Source and date |
|---|---|---|
| Goldman Sachs | Two cuts, June and December 2027, to 3.00% to 3.25% | Goldman Sachs Research, 9 June 2026 |
| JPMorgan | Next move is a rise, advanced to December 2026 | Feroli via MarketScreener, 30 July 2026 |
| Deutsche Bank | Two rises in 2026, then a prolonged pause near 4.1% | Via TMGM, 22 June 2026 |
| Wells Fargo | Hold at 3.50% to 3.75% through year-end 2027 | Wells Fargo Economics via FXStreet, 17 July 2026 |
| BofA | 75 basis points of increases in 2026 | Reuters, 22 June 2026 |
| Forward market | Three-month SOFR at 4.04% at end-2027 | Blue Gamma, 4 August 2026 |
Does hedging solve it?
It converts an unknown cost into a known one, which is a different thing from making it cheaper. A cap or a swap bought when the curve is already pricing rises is priced off that curve, so the borrower is not buying protection against the consensus. It is buying protection against being wrong about the consensus.
No named source publishes a current benchmark series for middle-market hedging costs, and none is offered here. What is published is the guidance: term out floating-rate debt now rather than betting on cuts (ABF Journal, 27 July 2026). That is a structural answer rather than a derivatives one, and for most lower-middle-market borrowers it is the more executable of the two.
The structural version of the same decision has three levers. Fix the portion of the stack that has to service through a downside, keep the floating portion where prepayment flexibility is worth more than certainty, and match the fixed tenor to the point in the curve you actually have exposure to rather than to the longest tenor available.
One caution on sequencing. Hedges and covenants are negotiated by different people at different times, and a hedge that fixes cash interest can still leave a fixed charge covenant exposed if the covenant runs on a definition that includes items the hedge does not cover. Test the covenant, not the coupon.
What does this mean for a maturity in 2027 or 2028?
It means waiting is no longer free. For the previous eighteen months a borrower approaching a maturity could reasonably defer, on the view that the refinancing would clear at a lower base rate than the one in front of it. The curve now prices the opposite.
The maturity profile itself has moved in the borrower's favour, which cuts against the urgency and should not be confused with it. Index loan maturities through the end of 2027 fell to $32bn from $62bn at the end of 2025, with $129bn pushed into 2029 and beyond (PitchBook LCD, 17 July 2026), and $39bn of index loans mature in 2027 against $230bn in 2028 (LevFin Insights, CR TrendLines July 2026, as of 30 June 2026). The wall was moved rather than dismantled.
It was moved through amendment. Amend-and-extend activity reached $106bn in the year to June 2026, up 26% year over year (PitchBook LCD, 17 July 2026). A borrower reading that as evidence the market will extend anything should read the credit mix alongside it: the share of extensions going to B-minus rated borrowers fell to 27% from 44%, while the share rated BB-minus or higher rose to 30% from 11%.
The practical sequence for a 2027 or 2028 maturity is unchanged by any of this, and only becomes harder the longer it waits. Establish what the structure services at 4.1%. Establish which covenant binds first at that rate. Then have the conversation with the incumbent lender while the credit still has the option of leaving, because that is the only leverage in the negotiation and it expires quietly as the maturity approaches.
As of August 2026
Sources: FOMC statement, 29 July 2026, and Bloomberg, 29 July 2026, for the hold, the vote and the direction of the dissents; Federal Reserve Summary of Economic Projections, 17 June 2026, for the median projections, the participant range and the March comparison; CME, 4 August 2026, for one-month and three-month Term SOFR; New York Fed, 4 August 2026, for overnight SOFR; CME FedWatch via MacroMicro, 4 August 2026, for the September meeting probability; Blue Gamma, 4 August 2026, for the three-month SOFR forward curve; Reuters, 21 July 2026, for the forecaster poll; SPP Capital Partners, Market At A Glance, July 2026, for the spread ranges underlying the worked example; KBRA, Q2 2026 Middle Market Compendium, twelve months ended 30 June 2026, published 28 July 2026, for median interest coverage and borrower count; Lincoln International, as of 31 March 2026, for fixed charge coverage and the share below 1.0 times; ABF Journal, 27 July 2026, for the guidance on terming out floating-rate debt; PitchBook LCD, 17 July 2026, for maturities through 2027, the amount pushed to 2029 and beyond, amend-and-extend volume and the extension credit mix; LevFin Insights, CR TrendLines July 2026, as of 30 June 2026, for 2027 and 2028 index loan maturities; bank forecasts as dated in the table. The debt service and coverage figures in the second section are our own arithmetic at a stated 3.0x all-floating structure, not a published series. No named source publishes a current middle-market hedging cost benchmark as at August 2026.