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JPMorgan argued that the expectation of two 25 basis point interest rate cuts from the US Federal Reserve in 2026, as investors anticipated, will not materialize. The bank predicts that the Fed will keep interest rates stable throughout 2026, with the next move possibly being an interest rate increase in 2027.
In a client note dated January 9, the bank stated that the US economy is projected to see accelerated employment and growth in 2026, while core inflation will remain above 3 percent. This macroeconomic outlook, it was noted, weakens the justification for a new interest rate cut by the Fed.
JPMorgan Chief Economist Michael Feroli stated in the note, “Given this macroeconomic background, we don’t think even a new and relatively dovish Fed chairman could convince the FOMC to cut interest rates.” Feroli wrote that the Fed will keep interest rates stable throughout 2026, with the first rate hike potentially coming in the third quarter of 2027 by 25 basis points.
Market pricing, however, points to a more dovish picture than JPMorgan’s forecasts. According to CME FedWatch Tool data, markets are pricing in a 32% probability of two rate cuts in 2026, a 25% probability of one cut, and a 22% probability of three cuts. The probability of the Fed keeping interest rates completely unchanged until the end of the year is seen at 8%.
On the other hand, US President Donald Trump is expected to appoint a new FED Chairman in the coming months. The new chairman’s four-year term will begin in May. In the past, Trump has frequently pressured the FED to lower interest rates faster and argued that the policy rate should be around 1 percent. Currently, the FED’s benchmark interest rate is in the 3.5–3.75 percent range.
Tensions between the White House and the central bank escalated further over the weekend. In a video, Fed Chairman Jerome Powell announced that he had been summoned to testify before Congress by the US Department of Justice regarding his testimony last year about the renovation costs of the Fed building. It is known that Trump has previously attempted to use these renovation costs as grounds to remove Powell from his post.
*This is not investment advice.