Fed set to cut interest rates for third time this year, 2026 forecast in focus

Consensus on the Fed’s policy move on Wednesday has strengthened around a 25 basis point rate cut, even if the decision is close, Yahoo Finance’s Jennifer Schonberger details.

Investors are pricing in an 89% chance that the Fed will cut interest rates by 25 basis points at the end of Wednesday’s FOMC meeting. CMEGroup’s FedWatch.

However, when we look at the January meeting and 2026 in general, it seems that the path is even more uncertain.

JPMorgan’s Michael Feroli wrote in a Dec. 5 note that one widely held view is that the Fed will proceed with a “hawk rate” on Wednesday, with the central bank cutting interest rates but signaling a pause in January. Investors estimate the probability of the Fed continuing to cut interest rates at its meeting on January 27-28 as 23%.

“We expect Powell at the press conference to emphasize that risk management cuts are overdue, with policy rates near neutral, and that further cuts will only come with a material deterioration in the labor market,” Feroli said.

“We do not expect him to comment directly on January, but instead want to emphasize that there is a lot of data that will be released between now and the January meeting and that will guide his decisions,” Feroli added.

Views for the rest of the year range from the Fed cutting rates in the next few policy meetings due to a deterioration in the labor market to additional rate cuts in the summer due to a change in Fed leadership.

You can find more information about 2026 forecasts for Federal Reserve policy here.