Emre Yumlu 
While global markets largely expect the US Federal Reserve (Fed) to begin easing monetary policy in the coming years, JPMorgan is pushing back against that consensus. According to the Wall Street banking giant, expectations for interest rate cuts in 2026 may be misplaced. Instead, the bank argues that the Fed is likely to keep rates unchanged throughout the year, with the next move potentially being a rate hike rather than a cut.
No Rate Cuts Expected in 2026
In a client note dated January 9, JPMorgan outlined a macroeconomic scenario that leaves little room for monetary easing. The bank forecasts stronger economic growth and improving labor market conditions in 2026, alongside core inflation remaining above the 3% threshold. This combination, JPMorgan argues, significantly weakens the case for rate cuts.
Chief Economist Michael Feroli emphasized that even under the leadership of a more dovish Federal Reserve chair, convincing the Federal Open Market Committee to lower rates would be challenging given the economic backdrop. JPMorgan’s base case assumes that policy rates remain unchanged throughout 2026, with the first potential rate increase—25 basis points—arriving in the third quarter of 2027.
Market Expectations Tell a Different Story for Rate Cut
JPMorgan’s outlook stands in sharp contrast to current market pricing. Data from the CME FedWatch Tool suggests that investors are still positioning for monetary easing. Markets assign a 32% probability to two rate cuts in 2026, while the likelihood of a single cut stands at 25%. Expectations for three rate cuts are priced at 22%, and only an 8% probability is assigned to the Fed keeping rates unchanged for the entire year.
This divergence highlights a growing gap between institutional forecasts and investor sentiment regarding the Fed’s future policy path.
Political Pressure and the Trump Factor
Adding complexity to the outlook is the anticipated appointment of a new Federal Reserve chair by US President Donald Trump in the coming months. The new chair’s four-year term is set to begin in May. Trump has historically advocated for significantly lower interest rates, previously arguing that policy rates should be closer to 1%.
At present, the Fed’s benchmark interest rate sits in the 3.5%–3.75% range, underscoring the distance between political preferences and current monetary policy.
Rising Tensions Between the White House and the Fed
Relations between the White House and the central bank have grown increasingly strained. Over the weekend, Fed Chair Jerome Powell disclosed in a video statement that the Department of Justice had requested testimony related to statements he made last year before Congress concerning the cost of renovating Federal Reserve buildings. Trump has previously attempted to use these renovation expenses as grounds for challenging Powell’s leadership.
Together, these developments suggest that the Federal Reserve’s policy decisions in the coming years will be shaped not only by economic data, but also by intensifying political pressure.
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