The Federal Reserve’s latest economic projections reveal a surprisingly shallow path for interest rate cuts in 2026, signaling that the policy will remain restrictive as the central bank contends with a resilient economy and sticky inflation.
Fed Forecasts Less Than A Single Cut In 2026?
The committee’s median forecast for the federal funds rate shows a decline to only 3.4% by the end of 2026, a mere 0.2 percentage point drop from the 3.6% projected for year-end 2025.
While 20 bps is less than a standard cut of 25 bps, this indicates that the median FOMC participant does not foresee a clear case for even one full rate reduction over the course of 2026.
The slow pace led experts to temper expectations for significant easing, with Stephen Rybka, the chief technology officer at Yardeni Research, concluding that “most Fed officials don’t expect to make many more reductions next year”.
Fed Remains ‘In A Pickle’
The central bank’s cautious stance is underpinned by its own upgraded economic outlook for 2026. Projections released Wednesday show officials now see a stronger economy than they did in June, with the median forecast for real GDP growth revised up to 1.8%.
At the same time, the projection for PCE inflation was revised higher to 2.6%, a key factor that supports holding rates higher for longer. This upgraded outlook, as noted by Bill Adams, Chief Economist for Comerica Bank, puts the Fed “in a pickle”.
See Also: The Rate Cut Trump Wanted Is Here — And Fed Hints More May Follow In 2025
Deep Division Within The Fed Shapes The Wobbly 2026 Outlook
This complex forecast contributes to a deep division within the committee on the appropriate path forward. Adams called the “split of dots on the Dot Plot… something to behold,” pointing to a “remarkably wide range of opinion” on where rates should go.
The disagreement is starkly illustrated by the 2025 projections, where one FOMC member sees the need for a rate hike while another projects 1.25% in additional cuts this year. This lack of agreement on the near-term outlook informs the cautious and minimal easing projected for 2026.
A Fed Meeting With Many Contradictions
The conflicting signals and internal divisions left many observers struggling to find a coherent message.
Anna Wong, Chief U.S. Economist for Bloomberg, stated, “I have not seen a meeting with so much contradictions”. The wide dispersion of views suggests the Fed’s path for 2026 remains highly uncertain and will be subject to contentious debate.
Price Action
The stock market ended mixed after the policy decision on Wednesday, as the S&P 500 and Nasdaq 100 indices fell, whereas the Dow Jones ended higher.
The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, fell on Wednesday. The SPY was down 0.12% at $659.18, while the QQQ declined 0.20% to $590.00, according to Benzinga Pro data.
On Thursday, the futures of the Dow Jones, S&P 500, and Nasdaq 100 indices were higher.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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