How Much Rate Cuts Will We See in 2026?
The Federal Reserve brought Wall Street a holiday gift of rate cuts late last year, but policymakers seem to think that’s enough for now. Expert projections show that the most likely outcome is two rate cuts in 2026, up from three last year.
The central bank implemented the last of three consecutive percentage point cuts for the quarter to 2025 at its December meeting, bringing its benchmark interest rate down to 3.5% to 3.75%.
Current projections based on future market activity show about a 56% chance of two or more rate moves this year. It’s not clear when the first rate cut is expected in 2026, although most economists broadly agree on a few points: The Fed is unlikely to change rates at this month’s meeting. You can’t wait until fall again.
“It seems like the market thinks the next cut will come in June. I personally don’t think we’ll see a big move between here and there,” said Derik Farrar, head of daily banking and lending at US Bank.
There is more ambiguity than usual when it comes to reading the Fed’s tea leaves, says Ross Mayfield, investment strategist at Baird.
“There’s room on both sides of the basic case — more than usual, I’d say,” he adds.
Another factor contributing to the negative outlook, according to Mayfield and others, is that President Donald Trump will be instrumental in reshaping the makeup of the pricing committee in 2026, including appointing a new chairman to replace Jerome Powell when his term ends in May. Trump has made no secret of his desire for lower rates, and Trump’s top job opponents have made public arguments for more and faster cuts.
The stakes are high for good: Leave prices too high for too long, and the economy could fall into a recession that crushes the labor market. Keep them low when the economy overheats, and inflation could spark an inferno — a mistake the Fed made a few years ago that pushed inflation to a four-decade high by 2022.
And market observers note that there is more disagreement than usual among policymakers about how to strike that balance.
“In the past, the Fed chairman has driven away consensus,” Farrar said, but policymakers today are more willing to vote against decisions they disagree with than to present consensus.
Even if the new Fed chair is publicly at odds with other policymakers, the impact on prices will likely be minimal, it said. Scott Ladner, chief information officer at Horizon Investments.
The Fed chairman is one of the 12 voting members of the rate-setting committee. That means the chairman position comes with more rigor, he adds.
“Just as the president has a bully pulpit, the Fed chairman has that for monetary policy,” Ladner noted.
What a 2026 Fed rate cut could mean for your money
Although the Fed doesn’t directly set the interest rates Americans pay on products like mortgages and credit cards, it’s the standard rate used by lenders to anchor their rates, especially the variable rates that are a feature of credit cards. Mortgage rates are also influenced by the Fed, although the impact is more complex and depends on other economic activities such as bond purchases and rate setting.
Unfortunately for savers, that means less chance of getting the 5% or more savings account and CD yields they’ve been able to earn over the past three or four years.
“Any short-term CDs or money market funds track the average fed funds very closely. If the base case plays out… at the end of the year you’re going to see about 3% in most products,” Mayfield said.
For borrowers, this means that the current rates they are seeing are likely to continue for a long time. “What you have today is what you will get next year,” Ladner said.
Farrar says the prospect of flat rates may be enough to pull people financing big-ticket purchases like homes and cars away. This has the potential to be good news for homeowners trying to sell in a sluggish market, while the release of pent-up demand for other goods and services may have an impact on economic activity at the margins.
The good news for borrowers is that experts see little chance of a Fed rate hike and rate hikes, although people with credit card debt can expect. APRs will remain elevated. Government data shows that the average rate of accounts with revolving balances is about 23%.
“It hasn’t changed what you have to do next,” Farrar said. “Pay off your credit cards.”
More from Mali:
From Loans to Jobs, Here’s How a Fed Rate Cut May Affect Your Wallet
Will Your Bank Raise Your Savings Rate If You Threaten To Leave?
Sorry, Home Buyers: Fed Rate Cut May Lower Your Mortgage Rate
