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1h ago

Fed Poised to Cut Rates Again as Split Officials Signal a Higher Bar for 2026 Easing

Attention pivots to the dot plot plus Powell’s tone, signaling a higher bar for 2026 cuts.

U.S. dollar, Euro, Yen and Pound banknotes are seen in this illustration taken May 4, 2025. REUTERS/Dado Ruvic/Illustration
Image
The Bank of Canada is pictured in Ottawa on Friday, March 3, 2023. The Bank Canada kept its key interest rate target on hold at 4.5 per cent on Wednesday. THE CANADIAN PRESS/Sean Kilpatrick
A view of the Bank of Canada building framed by tulips in Ottawa, Ontario, Canada May 8, 2025. REUTERS/Blair Gable

Overview

  • Futures put the odds near 90% for a quarter-point move that would take the federal funds rate to 3.50%–3.75%, marking a third consecutive cut.
  • Officials remain sharply divided, with expected dissents from both hawkish and dovish members and Governor Stephen Miran seen pushing for a larger 50-basis-point reduction.
  • A shutdown-driven data gap has delayed October and November jobs and inflation reports, forcing the committee to act with limited recent readings as core PCE last stood at 2.8% in September.
  • Fresh projections and the dot plot are set to be closely parsed for 2026, with analysts expecting guidance consistent with a ‘hawkish cut’ and a higher threshold for further easing.
  • Powell’s remarks carry added weight as his term ends in May 2026, with President Trump preparing to nominate a successor likely favoring lower borrowing costs.