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

Introduction to Interest Rates

The Federal Reserve’s decision to cut interest rates in 2026 is no longer a foregone conclusion. Several experts are casting doubt on this assumption, citing strong economic variables and persistent high inflation. J.P. Morgan Chief Economist Michael Feroli is among the prominent forecasters who don’t expect the Fed to make any cuts this year.

What’s Behind the Doubt?

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. The Fed’s seven governors and the presidents of the 12 regional Fed banks had penciled in an expectation on average of a single quarter-point cut this year. However, 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.

What This Means for the Economy

The Fed’s interest rate decisions shape borrowing costs across the economy, influencing everything from mortgage rates to business investment. If rate cuts fail to materialize in 2026, households and companies could face higher financing costs for longer, slowing economic growth. The Fed has a dual mandate to keep employment high and maintain price stability, and has kept rates at higher-than-usual levels in recent years to push down inflation.

Three Reasons to Hold Rates Steady

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

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. This is one reason Feroli cites for taking his previous forecast for rate cuts off the table for 2026.

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. Feroli expects the upcoming release of the Personal Consumption Expenditures Index 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’s hardball tactics could make Powell and other Fed officials inclined to defy Trump in order to defend the central bank’s independence.

Conclusion

In conclusion, the Federal Reserve’s decision to cut interest rates in 2026 is no longer a certainty. With a falling unemployment rate, persistent high inflation, and Trump’s pressure on the Fed, it’s possible that the Fed will hold rates steady. This could lead to higher financing costs for households and companies, slowing economic growth. As former Fed president Eric Rosengren said, "It’s still not a slam dunk, even with a new Fed Chair, that rates actually decline," particularly if the administration’s jawboning and potential legal challenges raise concerns about Federal Reserve independence.