Will the Fed Cut Interest Rates in 2026? Don’t Get Your Hopes Up, Some Experts Say

Interest rate cuts by the Federal Reserve in 2026 seemed like a foregone conclusion not long ago, but several experts are casting doubt on that assumption.

J.P. Morgan Chief Economist Michael Feroli is among the more prominent forecasters who don’t expect the Fed to make any cuts this year.

“If you look at financial markets or GDP growth, it doesn’t really feel like rates are restrictive when we see how strong those variables are performing,” Feroli said in an interview Wednesday on CNBC. He cited retail sales numbers that were released early Wednesday as the latest sign of economic strength. “I think the case for a cut in the near term is pretty weak.”

Feroli’s prediction goes against the expectation of financial market participants, who are pricing in a likelihood of two quarter-point cuts in the Fed’s benchmark rate in 2026, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data.

In their latest quarterly projections last month, the Fed’s seven governors and the presidents of the 12 regional Fed banks penciled in an expectation on average of a single quarter-point cut this year, which would bring the key federal funds rate to a range of 3.25% to 3.5%. At the time, eight projected no more than two quarter-point cuts in 2026, while four called for more-aggressive reductions, and seven were leaning against any adjustments.

While it’s unclear how the thinking of the policy-setting Federal Open Market Committee may have changed, the economic scenario since December has evolved in ways that are prompting some prominent voices to suggest further rate cuts may not be coming any time soon. (The FOMC comprises the seven Fed governors and a rotating group of five regional Fed presidents.)

Fed officials lowered the fed funds rate by three quarters of a point in late 2025 amid fears that the recent job market slowdown could turn into a surge of unemployment. Lower interest rates are meant to stimulate economic activity and hiring.

The Fed, which has a dual mandate to keep employment high and maintain price stability, has kept rates at higher-than-usual levels in recent year to push down inflation, which has been above the central bank’s target of a 2% annual rate since 2021. A higher fed funds rate raises borrowing costs on all kinds of loans, which in turn reduces borrowing and spending, helping mute inflation.

There are three major reasons Feroli and other experts have begun to cast doubt on expectations that further rate cuts are on the horizon.

Three Reasons To Hold Rates Steady

The Unemployment Rate Is Falling

First, despite slow hiring, the unemployment rate fell slightly to 4.4% in December, which took some of the pressure off of the Fed to cut rates and save the job market.

That’s one reason Feroli cites for taking his previous forecast for rate cuts off the table for 2026. The unemployment rate “isn’t looking quite as worrisome as it was, let’s say, a few months ago,” Feroli said Wednesday.

David Doyle, head of economics at Macquarie Group, agrees, telling Morningstar last week that “our view is that the data will guide them toward not cutting.”

Inflation Remains Well Above Target

Second, while inflation was cooler than expected in December, it’s still well above the Fed’s goal and has shown little sign of cooling any time soon, former Boston Fed President Eric Rosengren told Bloomberg TV Tuesday.

Feroli said he expects the upcoming release of the Personal Consumption Expenditures Index, which is the Fed’s preferred measure of inflation, to show that annual inflation is above 3%.

Trump’s Push to Cut Rates Meets Resistance

Finally, it’s possible that President Donald Trump’s pressure on the Fed to sharply lower interest rates could backfire. Trump has demanded the Fed cut interest rates, and his Justice Department has launched a criminal investigation of Fed Chair Jerome Powell.

Those hardball tactics could make Powell and other Fed officials inclined to defy Trump in order to defend the central bank’s independence.

For example, Powell, who denounced Trump’s “intimidation” last week, is now more likely to stay on as a governor after his term as Chair ends in May to help protect the Fed’s independence, Krishna Guha, vice chairman at Evercore ISI, wrote in a note Sunday, CNBC reported.

Former Fed president Rosengren said rate cuts this year aren’t guaranteed—even if Trump gets a new, pro-rate-cut Fed Chair confirmed by the Senate.

“It’s still not a slam dunk, even with a new Fed Chair, that rates actually decline,” he added, “particularly if the administration’s jawboning and potential legal challenges raise concerns about Federal Reserve independence and some of the voting members want to be sure that the economic conditions justify a move,” he said.