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US financial giant Wells Fargo has significantly revised its interest rate expectations for 2026. The bank’s investment arm, Wells Fargo Investment Institute, stated that it no longer expects the Fed to cut interest rates this year due to increased geopolitical risks stemming from the Iran conflict and uncertainties surrounding inflation.
The institute had previously predicted two interest rate cuts in 2026. However, in its latest assessment, it stated that the observed increase in inflation may be temporary, but in an environment of high uncertainty, the Fed will act more cautiously. Wells Fargo strategists said, “The balance of risks now encourages the Fed to be patient.”
On the other hand, Nick Timiraos, a Wall Street Journal reporter and known for his close ties to the Fed, highlighted the resilience of the US labor market. According to Timiraos, the March employment data once again demonstrated why economists have long avoided being pessimistic about the labor market. Despite aggressive interest rate hikes, regional banking crises, and trade shocks over the past four years, the labor market has managed to remain afloat.
However, the conflict with Iran and the resulting fluctuations in energy prices and supply chains are testing the limits of this resilience. In March, US employment increased by 178,000, offsetting the sharp drop of 133,000 in February. The unemployment rate also fell to 4.3 percent, reversing the previous month’s rise.
However, the details of the data point to a more cautious picture. Wage increases have slowed to their lowest annual rate since the post-pandemic recovery period. Timiraos notes that, averaging between February and March, monthly employment growth remained at only 22,500.
Economists point out that this relative stability in the labor market can now be sustained with lower employment growth. Due to declining immigration and rising retirement rates, even lower net employment growth compared to previous years is enough to maintain market equilibrium. This could pave the way for the Fed to adopt a longer wait-and-see approach to its interest rate policy.
*This is not investment advice.