US Fed signals rate-cut pause in 2026

Investors face data gaps, new leadership

- SAQIB IQBAL AHMED LEWIS KRAUSKOPF

A TV screen at the New York Stock Exchange shows US Fed Chair Jerome Powell speaking after a Federal Open Market Committee meeting Wednesday.

(BLOOMBERG)

After three consecutive interest rate cuts, investors now confront an uncertain US monetary policy outlook for the year ahead, clouded by persistent inflation, data gaps, and an impending leadership change at the Federal Reserve.

The US Federal Reserve cut interest rates by a quarter-percentage point on Wednesday in an uncommonly divided vote but signalled it would likely pause further reductions in borrowing costs as officials look for clearer signals about the direction of the job market and inflation that “remains somewhat elevated.”

The Fed's projection for a slower easing path contrasts with market expectations for two 0.25% cuts in 2026, which would bring the fed funds rate to about 3.0%. Policymakers see only one cut next year and one in 2027. Wednesday’s cut brought the policy rate to a range of 3.50%-3.75%.

The central bank’s updated projections showed six policymakers preferring no rate cut this year, and seven anticipating no further cuts in 2026.