How many Fed rate cuts in 2026?
Markets are strongly leaning toward no Fed rate cuts in 2026, and with only the late-year meetings left the default outcome is still a hold. I agree with the broad direction, but I think there is still enough downside risk to the economy that the true chance of zero cuts is a bit lower than the market price implies.
Analysis
The market is pricing a very high likelihood that the Fed finishes 2026 without any rate cuts, and that pricing makes sense given the structure of the calendar and the Fed’s usual caution. As of mid-August, only a limited number of scheduled meetings remain, and unless incoming data deteriorates meaningfully, the Committee has ample time to continue waiting for clearer evidence before easing. A no-cut outcome is especially plausible if inflation remains sticky enough to keep policymakers focused on credibility and real rates rather than preemptive support for growth.
Arguments for Yes are straightforward: the Fed generally needs a convincing combination of softer inflation, weaker labor-market data, or a broader financial stress event before it cuts. If the economy is still expanding at a moderate pace, unemployment is not rising sharply, and inflation is not convincingly back near target, then holding steady through year-end is the safer path. The closer the Fed gets to December without a strong deterioration in data, the more likely it is that officials prefer to preserve optionality and postpone easing into 2027 rather than act late and risk reaccelerating inflation.
Arguments against Yes are also meaningful, though less likely than the market suggests. There are still several months left in 2026, and the Fed can move quickly if labor-market weakness accelerates, credit conditions tighten abruptly, or growth slows more than expected. Emergency cuts are rare, but the market design counts them, and a late-year shock could still create a single 25 bp cut that breaks the no-cut thesis. So while the base case is that the Fed stays on hold, the remaining time window is still long enough that a modest macro surprise could change the outcome.
Arguments
For
- Arguments for Yes: If inflation stays sticky, the Fed may prefer to keep policy restrictive rather than risk easing too early.
- Arguments for Yes: With limited time left in the year, the Fed can simply wait for more data and leave rates unchanged.
Against
- Arguments against Yes: Three or more months still allow one weak data sequence to trigger a precautionary cut.
- Arguments against Yes: A sharp growth or employment slowdown could make a 25 bp cut politically and economically attractive before year-end.
Key drivers
- Only a few scheduled FOMC meetings remain in 2026, which reduces the number of opportunities for a cut.
- The Fed typically needs clear evidence of weaker growth or inflation progress before easing policy.
- Emergency cuts are possible but historically require a significant macro or financial shock.
Risk factors
- A late-2026 labor market deterioration could force the Fed to cut once or more.
- An abrupt recession or market stress event could override the current hold bias.
Scenarios
Best case
The economy remains resilient, inflation proves stubborn enough to keep the Fed cautious, and all remaining 2026 meetings end with no change in rates.
Most likely
The Fed mostly stays on hold through the rest of 2026, with no cuts emerging unless the data unexpectedly soften late in the year.
Worst case
Incoming data weaken quickly or a shock hits financial conditions, prompting at least one 25 bp cut before December and ending the no-cut outcome.
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