How many Fed rate cuts in 2026?
The market is heavily tilted toward no Fed cuts in 2026, and that remains the most likely outcome if inflation is still sticky and the labor market is not deteriorating sharply. Still, with several FOMC meetings left in the year, the chance of at least one cut is meaningfully higher than the market implies.
Analysis
The market is pricing a very high probability that the Fed will keep the policy rate unchanged for all of 2026. That makes sense if the Fed has spent the year emphasizing caution, with policymakers still prioritizing inflation control and resisting the urge to ease too soon. By early September, the absence of any cuts so far would itself reinforce the view that the committee is comfortable staying on hold unless the macro data deteriorate materially in the remaining meetings.
Even so, the main reason to discount the market price somewhat is that there is still a lot of year left, and the Fed does not need a recession to justify a cut. If growth slows, payrolls soften, unemployment rises, or inflation continues to trend lower, the committee could choose to make one or two preventive cuts before year-end. The probability of at least one cut is especially sensitive to the balance of risks in the next few data releases, because once the Fed signals a shift, markets can move quickly from expecting no action to expecting multiple cuts.
The strongest argument for no cuts is inertia in the current policy framework. If inflation remains above target or services inflation stays firm, the Fed has room to wait, particularly if financial conditions are not tight enough to force a response. The committee also tends to prefer clear evidence before changing course, and a labor market that is slowing but not breaking can still justify holding steady. In that kind of scenario, the base case remains no cuts through December.
My assessment is somewhat less extreme than the market because the remaining downside risks to growth are not negligible, and the Fed has more flexibility than the price suggests. A late-year move is still plausible if the economy weakens, if prior tightening finally shows up in hard data, or if policymakers want to cushion a softer outlook. That said, without a visible recessionary signal, the no-cut outcome is still the dominant path.
Arguments
For
- Arguments for Yes: The Fed may prefer to hold rates steady all year if inflation is still not fully under control.
- Arguments for Yes: The committee can wait for clearer evidence of economic weakness before risking an unnecessary cut.
Against
- Arguments against Yes: A softening labor market or weakening growth could still force the Fed to cut before year-end.
- Arguments against Yes: With several meetings remaining, even a modest deterioration in data would make at least one cut plausible.
Key drivers
- If inflation stays above target or reaccelerates, the Fed has little reason to cut in 2026.
- If labor market conditions weaken sharply, the Fed could still deliver one or more cuts late in the year.
Risk factors
- A sudden growth slowdown or rise in unemployment could quickly flip the Fed toward easing.
- Market expectations can change fast if upcoming data show disinflation without major labor market damage.
Scenarios
Best case
Inflation remains sticky, the labor market stays resilient, and the Fed keeps the policy rate unchanged through every scheduled meeting and any potential emergency action in 2026.
Most likely
The Fed continues to hold steady for most or all of 2026, with no cuts ultimately occurring unless late-year data deterioration becomes severe enough to force a pivot.
Worst case
Growth weakens faster than expected or unemployment rises, prompting the Fed to cut multiple times before year-end and making the no-cut outcome impossible.
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