The Fed made three interest rate cuts in 2025, bringing the total rate reduction to 75 basis points.
With these decisions, the Fed, which cut rates by 25 basis points in September, October, and December, maintained the expectation of a single rate cut for 2026 in investor projections.
However, predictions for 2026 vary. Some economists expect further interest rate cuts, while others expect no cuts at all.
Speaking to CNBC, Mark Zandi, chief economist at Moody’s Analytics, said the Fed will implement at least two interest rate cuts next year.
Zandi stated that although the US economy appears robust on the surface, it is in reality experiencing growth on thin ice with stagnant employment, and that monetary policy support is essential to bolster the economy.
Zandi stated that the dynamics in the US point to a gradual and cautious interest rate reduction path rather than an aggressive rate-cutting cycle.
According to Zandi, inflation has also complicated the Fed’s outlook for interest rate cuts. Zandi argues that the consumer price index (CPI) is closer to 3% than the central bank’s 2% target, which slows down policymakers’ ability to act.
“According to the data, prices remain high, but the Fed will face the dilemma of reluctantly having to lower interest rates to prevent a cooling in the labor market.”
*This is not investment advice.