Markets weighed a shallow easing path against a higher‑for‑longer reality
The Federal Reserve entered 2026 with its benchmark rate still parked at 3.5%–3.75% and a growing chorus of economists trimming expectations for how much relief would arrive next year.
J.P. Morgan Global Research no longer expected a rate cut at the January meeting after the unemployment rate eased back to 4.4%. Chief US economist Michael Feroli said the jobs data suggested the labor market “settled into an equilibrium of slower labor supply growth met by slower labor demand growth, though with few signs of further deterioration.”
He added that “the recent stabilization in the unemployment rate should finally bring some cohesion to the FOMC, and we now look for the Committee to be on hold at the January meeting.”
Wall Street scales back 2026 easing bets
Beyond January, J.P. Morgan sees no cuts at all in 2026, projecting the funds rate would hold at 3.5%–3.75% before a 25‑basis‑point hike in the third quarter of 2027 that would lift the upper band back to 4%.
“The proposition that rates are restrictive looks increasingly untenable given economic and financial developments,” Feroli said, although he noted the Fed could still ease if “the labor market weakens again in the coming months, or if inflation falls materially.”
Barclays, Goldman Sachs and Morgan Stanley also pushed their rate‑cut timelines back toward mid‑2026, reflecting data that shows a cooling but still resilient labor market.
Goldman Sachs, which has previously expected cuts in March and June, now anticipates two 25‑basis‑point reductions in June and September 2026, and sees the fed funds rate ending 2026 at 3–3.25%.
SIFMA’s Economic Advisory Roundtable, which brought together chief economists from more than 20 institutions, pointed to a middle path. Its year‑end 2025 survey saw 4Q‑over‑4Q real GDP growth of 2.2% in 2026 and “one to two Fed cuts” by the end of that year, with a median funds rate of 3.25% in the fourth quarter.
Politics and mortgage implications
The monetary debate unfolded under unusual political pressure. The Department of Justice opened a criminal probe into Fed chair Jerome Powell, whose leadership term is due to end in May, while the Supreme Court prepared to hear arguments over President Trump’s attempt to fire Governor Lisa Cook.
The administration is expected to name a new Fed chair in the coming weeks, with Kevin Hassett, director of the National Economic Council, widely viewed as a contender favoring lower rates.
Even so, history suggested one person could not unilaterally drive policy. “As a Fed chair cannot dictate policy decisions, Hassett would have to build consensus on the FOMC for his views,” Feroli said.
Mortgage professionals, already accustomed to elevated borrowing costs, mainly prepared for modest, not dramatic, relief. Sam Williamson, senior economist at First American believes patience will be the name of the game for the Fed in the early parts of 2026. While a March cut isn’t off the table, the next rate cut might not come until the new chair takes over for the June meeting.
“While the balance of risks still tilts toward additional easing, the early-year mix of data points to a slower cadence in 2026—potentially just one or two cuts by year's end rather than a steady sequence,” he told Mortgage Professional America.
PIMCO economist Tiffany Wilding described a similar path following the Fed’s January hold, arguing that officials signaled “further easing will eventually be appropriate, although there is no sense of urgency” and that the central bank was “in a good place to react to incoming developments” as inflation and labor‑market risks eased.
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