How many Fed rate cuts in 2026?
I think there is a strong chance the Fed leaves rates unchanged for all of 2026, but I would price it a bit below the market’s current 88% because a late-year cut is still a meaningful tail risk. My estimate is 84% for no cuts in 2026.
Analysis
As of late August, no Fed cuts have occurred yet in 2026, which materially improves the outlook for this market because only the remaining meetings now matter. That timing advantage is important: to lose the bet, the Fed needs to deliver at least one 25 bp cut in the final stretch of the year, likely after a clear shift in the data rather than from routine policy drift.
The base case for no cuts is that the Fed still appears able to justify patience if inflation is not convincingly back to target and the labor market is only gradually cooling. In that environment, the committee can preserve optionality, avoid overreacting to monthly volatility, and wait for stronger evidence before easing. Central banks often prefer to keep policy unchanged when the balance of risks is mixed and the cost of cutting too early is seen as higher than the cost of waiting.
The main reason to be cautious about a very high probability is that only a modest deterioration in growth, hiring, or financial conditions could shift the discussion toward one cut by year-end. With several meetings still left, a single soft CPI report, a weaker payroll sequence, or a sudden tightening in credit conditions could quickly make a 25 bp cut seem appropriate. That keeps the downside to the no-cut outcome alive even if the current stance is broadly restrictive.
The market-implied price for no cuts is already high, and I generally agree with the direction of that pricing, but I would trim it slightly because policy surprises tend to come late when the committee has more data in hand. My view is that the most likely path is still no cuts, yet the probability of one late-year reduction is large enough to keep this below the market’s current level rather than above it.
Arguments
For
- Arguments for Yes: With no cuts yet and only a few meetings left, the Fed can still finish the year unchanged if the data stay mixed.
- Arguments for Yes: Persistent inflation or cautious officials would favor waiting rather than easing prematurely.
Against
- Arguments against Yes: One weak labor or inflation read could quickly justify a 25 bp cut before year-end.
- Arguments against Yes: If growth slows more sharply than expected, the Fed may choose to support the economy rather than keep rates steady.
Key drivers
- Only a few FOMC meetings remain, so the Fed has limited time to deliver a cut before year-end.
- Sticky inflation or only gradual disinflation would give the Fed a strong reason to stay on hold.
- A 25 bp cut requires a meaningful deterioration in the data, which is not the baseline assumption.
- Current market pricing already reflects a strong expectation of unchanged policy, reinforcing the hold scenario.
Risk factors
- A sudden slowdown in payrolls or consumer demand could make one cut politically and economically easy.
- Unexpected financial stress could prompt the Fed to ease even if inflation is not fully back to target.
- A sequence of weaker inflation and growth data could shift the committee from patience to preemptive cutting.
- An emergency move outside scheduled meetings, while unlikely, would immediately break the no-cut outcome.
Scenarios
Best case
Inflation stays sticky enough and the labor market remains stable, allowing the Fed to hold rates unchanged at every remaining meeting in 2026.
Most likely
The Fed likely stays on hold unless the late-year data weaken materially, so no cuts is still the single most probable outcome but not a lock.
Worst case
Growth or employment weakens enough that the Fed cuts at least once in the fall or December, which resolves the market to No.
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