How many Fed rate cuts in 2026?
I make no Fed rate cuts in 2026 a strong favorite at about 89%, because the Fed’s own projections and the latest inflation data point more toward hold-or-hike than easing. The main way this loses is if inflation cools quickly and the labor market weakens materially over the next few reports.
Analysis
The Fed’s latest signal is distinctly non-dovish. At the June meeting it kept the target range at 3.50% to 3.75%, said inflation remained elevated, and the June Summary of Economic Projections put the median federal funds rate at 3.8% at the end of 2026, which is above the current range and therefore leans against any cut this year. The official minutes went even further, saying the Desk survey implied no changes through the beginning of 2027 and only one cut in the second quarter of next year, which is about as clean a no-cut-2026 signal as you can get.
Arguments
For
- The June SEP median projected the federal funds rate at 3.8% at year-end 2026, above the current range, which is more consistent with no cuts than with easing.
- The June minutes’ Desk survey implied no policy changes through the beginning of 2027 and only one cut in the second quarter of next year.
- Inflation remains too hot for comfort, with May PCE at 4.1% and core PCE at 3.4%, so the Fed has little room to ease without a clear disinflation trend.
- The Fed’s July 10 report said inflation stepped up further this spring while the labor market had stabilized, reinforcing a hold-or-hike bias rather than a cut bias.
Against
- June payroll growth slowed to 57,000 and prior months were revised down, so a continued labor-market softening could eventually push the Fed toward easing.
- A cooler-than-expected July 14 CPI report could rapidly change the narrative before the July and September meetings.
- If energy prices keep falling and tariff-driven inflation fades, the inflation impulse could ease faster than the Fed currently expects.
- The economy is still only moderately growing, so a sharper slowdown in coming data would make cuts more plausible.
Key drivers
- Current policy is already restrictive and the Fed has held the target range at 3.50% to 3.75% since June.
- The Fed’s own June projections point to a slightly higher policy rate by year-end rather than a lower one.
- Inflation is still running well above the 2% goal, which keeps the committee focused on persistence risk.
- The latest labor data are weaker than earlier in the spring but not yet weak enough to force immediate easing.
- Only four scheduled FOMC meetings remain after mid-July, so the window for a 2026 cut is narrow.
Risk factors
- A downside surprise in July CPI or later inflation prints could quickly revive cut expectations.
- Further payroll revisions or a weaker August and September jobs trend could shift the Fed back toward growth support.
- Market-implied policy expectations can move fast if bond yields fall and financial conditions ease.
- Energy shocks remain a live risk, and the Fed minutes explicitly tied higher inflation to Middle East-related costs.
- A sharp recession scare would override the current hawkish bias and make late-year cuts possible.
Scenarios
Best case
Inflation cools meaningfully after the July 14 CPI and labor data stay only mildly soft, leaving the Fed on hold all year and making a 2026 cut unnecessary.
Most likely
The Fed keeps rates unchanged through the rest of 2026, with debate centered on whether the next move is a hold or even a hike rather than a cut.
Worst case
Inflation reaccelerates or the labor market weakens enough that the Fed cuts in September or December, breaking the no-cut outcome.
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