How many Fed rate cuts in 2026?
The market is pricing a very high chance that the Fed makes zero cuts in 2026, and that looks broadly plausible given the absence of any confirmed easing cycle in the provided context. I would still leave some room for at least one cut if growth weakens or inflation cools more than expected, but the most likely outcome remains no cuts.
Analysis
The market is asking whether the Fed will make no rate cuts at all during 2026, and the current price implies a very strong belief that the answer is yes. At 92.75% for Yes, traders are effectively saying that the bar for a cut is quite high and that the most likely path is a still-restrictive policy stance through the end of the year. Given the lack of contrary news in the prompt, the market’s view appears to be anchored in the idea that inflation and labor-market conditions remain sufficient for the Fed to avoid easing, or at least that the central bank will not feel compelled to move during 2026.
The strongest case for no cuts is that the Fed typically needs a clear deterioration in growth, employment, or financial conditions before lowering rates, and a single cut would already be enough to invalidate this market. If inflation is still above target or only gradually converging, policymakers may prefer to wait rather than risk reigniting price pressure. Even if the economy slows, the Fed could choose to hold steady for longer than many participants expect, especially if it believes policy is only modestly restrictive and still doing its job.
On the other hand, this is a long enough horizon that one meaningful shock can change the outcome quickly. By September 2026, there may still be several months and multiple FOMC meetings left in the year, so recession concerns, a sudden labor-market weakening, or a sharp drop in inflation could easily force one 25 bp cut. Because the contract resolves against any cuts at all, the “No” side has a relatively low threshold for success: it only takes one move. That creates some genuine tail risk even if the base case is no change.
My assessment is slightly less extreme than the market price. The market’s 92.75% implies near certainty, but with several meetings remaining and the Fed retaining flexibility, I think the chance of at least one cut is somewhat higher than the market suggests. Still, the balance of evidence favors no cuts over cuts, because the Fed generally acts cautiously, and absent a clear economic break, maintaining the current stance is often easier than reversing course.
Arguments
For
- Arguments for Yes: The Fed usually needs convincing evidence of weakening conditions before delivering even one cut.
- Arguments for Yes: With only one cut needed to lose the No outcome, the Fed can still avoid easing if inflation and growth stay resilient.
Against
- Arguments against Yes: Several FOMC meetings remain in 2026, so there is ample time for an economic shock to produce at least one cut.
- Arguments against Yes: If unemployment rises or inflation falls materially, the Fed may decide that a modest cut is necessary.
Key drivers
- Inflation persistence would reduce the likelihood that the Fed feels comfortable easing in 2026.
- A late-year economic slowdown or labor-market deterioration could force at least one cut and break the No outcome.
Risk factors
- A sudden recession scare or financial instability could trigger an emergency or scheduled cut.
- If disinflation accelerates faster than expected, the Fed may decide policy is too restrictive and begin easing.
Scenarios
Best case
Inflation stays sticky enough, growth remains positive, and labor markets do not weaken materially, allowing the Fed to hold rates unchanged for all of 2026.
Most likely
The Fed remains on hold for much of the year and the market is correct that no cuts occur, though the main risk is a late-year slowdown that forces at least one cut.
Worst case
Economic activity softens sharply or market stress emerges, prompting one or more 25 bp cuts and causing the No outcome to prevail early.
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