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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What Is the Current Economic Outlook for the United States?

The current inflation rate in the United States is hovering around 3%. However, the FED’s target is to bring this figure down to approximately 2% annually. The interest rate applied to the U.S. dollar currently stands at around 4%. Considering the “stable but fragile” market conditions mentioned by the FED, it is expected that this rate may decline toward 3% in the near future.

The U.S. unemployment rate, which reached a historic peak of 14.9% in 2020, has since corrected to 4.3%. However, when examining the labor market over the past few months, little change is observed. Although progress continues, some FED officials consistently highlight that employment growth has slowed significantly — a trend that could lead to a higher unemployment rate.

Although the flames around tariffs seem to have cooled in recent months, tariff policies and global trade uncertainties will likely have a negative impact on inflation. This uncertainty appears poised to influence inflation in a positive direction.

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How Are the FED and Its Officials Interpreting the Situation?

• Philip Nathan Jefferson (FED Vice Chair):
  I supported the FOMC rate cut in October. Overall, the economy hasn’t changed much in recent months, but the lack of progress on inflation appears to stem from tariffs. Interest rates are close to neutral, so it’s better to move slowly.
• Michael Solomon Barr (FED Board Member):
  Progress has been made on inflation, but there’s still work to be done.
• Christopher J. Waller (FED Board Member):
  Stablecoins are not a threat to monetary policy.
• Beth M. Hammack (FED Bank President):
  I do not believe current economic data justify a rate hike. The people I’ve spoken with indicate that the labor market remains in an environment of low hiring and low layoffs. Keeping the Fed’s policy restrictive will help bring inflation down.

How Do Trump’s Trade Policies Affect the Economy?

Donald Trump referred to the ongoing legal process regarding tariffs and mentioned the need for new alternative plans. He stated that if the Supreme Court case ends unfavorably, an alternative plan is ready — though it would progress more slowly. FED officials may interpret the resulting price increases from these tariffs as renewed inflationary pressure. This is because, inevitably, import costs — and thus consumer prices — are likely to rise.

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Trade Talks Boost Bitcoin and Market Sentiment

Following a record $19 billion liquidation event that triggered widespread panic, reports of a temporary tariff truce between Washington and Beijing have helped calm investor nerves. Market sentiment has shifted from “fear” to “neutral,” according to recent indicators, as hopes of de-escalation improve risk appetite across global markets.

A crucial meeting between US President Donald Trump and Chinese President Xi Jinping is scheduled for Thursday, where both sides are expected to discuss a new framework aimed at preventing further trade tensions. Industry experts believe the outcome of the meeting could set the tone for both traditional and digital asset markets in the weeks ahead.

Wenny Cai, co-founder and COO of SynFutures, commented that the latest progress in US-China trade talks had “ignited a weekend rally in Bitcoin,” adding that optimism around the negotiations “has lifted overall risk sentiment.”

Trump Signals Confidence in Reaching a Deal

In remarks made aboard Air Force One on Monday, President Trump said he believed both nations would “come away with the deal,” fueling optimism across markets. Following his statement, Bitcoin reclaimed the short-term holder (STH) cost basis at approximately $114,000 — a key level for sustaining short-term momentum.

Analysts note that holding above this threshold is crucial for Bitcoin’s stability, as dips below it tend to trigger increased selling pressure from short-term investors. The recovery above this point suggests improving resilience in the market despite recent shocks.

Markets Eye the Upcoming Fed Decision

Attention is now turning to Wednesday’s Federal Open Market Committee (FOMC) interest rate decision, another major catalyst for risk assets. According to the CME Group’s FedWatch tool, markets are pricing in a 96.7% probability of a 25-basis-point rate cut by the Federal Reserve.

Expectations of lower borrowing costs are fueling demand for risk-on assets, including cryptocurrencies. Many investors anticipate that a combination of monetary easing and easing trade tensions could pave the way for a broader market recovery.

A Renewed Sense of Stability for Bitcoin

Earlier this month, Trump’s announcement of a potential 100% tariff on Chinese imports — set to take effect on November 1 — triggered a sharp sell-off, sending Bitcoin briefly below $105,000. However, recent signs of diplomatic progress and dovish monetary expectations have helped stabilize market conditions.

Bitcoin’s ability to reclaim key technical levels amid improving macroeconomic sentiment highlights the asset’s growing maturity. If Thursday’s talks result in a concrete agreement, analysts believe Bitcoin could extend its rebound and strengthen its position as a global hedge against economic uncertainty.

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Polymarket Sees 25 Basis Point Rate Cut Emerge as Frontrunner

The market has turned its attention to the Fed’s October 29 meeting. Polymarket investors believe a rate cut is almost certain. The 25 basis point cut scenario is clearly in the lead with a trading volume exceeding $5.4 million. The “no interest rate change” option remained at a volume of $4.5 million. There is only a 4% chance of a 50 basis point or greater cut, while the probability of a fixed rate is 7%. The 25 basis point cut is leading, and markets are pricing it in.

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US Political Uncertainty Boosts Rate Cut Expectations

Evercore ISI strategist Krishna Guha said the potential US government shutdown is complicating the Fed’s decision-making. Delays in data flow and a slowdown in public spending are increasing the likelihood of a rate cut in October. The slowdown in the labor market is also pushing inflationary pressures into the background and supporting the Fed’s cautious stance.

According to Guha, even if the Fed sends cautious messages, consecutive interest rate cuts will remain on the agenda until the end of the year. Markets have already priced in this possibility. Investors are closely following the scenario that the Fed will cut interest rates before the end of the year.

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Hammack Expresses Concern

Hammack emphasized that reaching the 2% inflation target has been impossible for the past four and a half years. She noted that price increases, especially in the services sector, continue. “We are under pressure from both sides. Is cutting rates a mistake? There’s no clear answer,” she said. Her remarks highlighted the Fed’s struggle to balance the labor market and inflation.

Expectations for Interest Rate Cuts

Following September’s 25-basis-point reduction, markets expect another cut in both October and December. According to CME data, the probability of a 25-basis-point reduction in October exceeds 89%. However, with core inflation surpassing 3%, questions arise about how much further the Fed can lower rates.

You May Be Interested In: Next Fed Interest Rate Decision: 2025 Schedule & Outlook

Diverging Opinions Within the Fed

Unlike Hammack, members Christopher Waller, Stephen Miran, and Michelle Bowman advocate for aggressive rate cuts. This divergence shows significant policy differences within the Fed. Investors are closely monitoring these debates and inflation trends in the market.

The Fed now faces a critical period, trying to protect the labor market while controlling inflation. Ongoing uncertainty and discussions about interest rate cuts will play a crucial role for investors moving forward.

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A Clear Signal for the Next Meeting to Rate Cuts

Reiterating his earlier stance, Waller stated that the Fed should move ahead with a rate cut at its upcoming policy meeting. He also suggested that multiple rate reductions could follow in the months ahead, depending on economic data.

Flexibility in the Pace of Cuts

Waller emphasized that the Fed does not need to stick to a rigid pace when adjusting interest rates. “We can always recalibrate the speed of cuts,” he explained. This underscores the central bank’s data-driven approach, allowing it to adapt policy in response to evolving conditions.

Concerns Over the Labor Market

Another key point raised by Waller was the recent softening in the labor market. He stressed that the Fed must act to prevent further deterioration, highlighting the central bank’s dual mandate of maintaining price stability while supporting employment.

Inflation Outlook for Rate Cuts

While acknowledging that inflation could see slight upward moves in the short term, Waller dismissed concerns of a lasting rebound. He expects inflation to move closer to the Fed’s 2% target over the next six months, reinforcing confidence in the current policy path.

Growth Expectations: Slowdown, Not Recession

Waller ruled out the likelihood of a recession but noted that U.S. economic growth is likely to decelerate. He also argued that while tariffs may weigh on growth this year, they are unlikely to create long-term inflationary pressures.

Addressing Fed Chair Speculation

Finally, Waller clarified that he has had no discussions regarding the possibility of becoming Fed Chair, putting an end to speculation surrounding his potential candidacy.

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What Are Fed Officials Saying?

Fed Chair Jerome Powell, in his speech at the Jackson Hole Economic Policy Symposium, stated, “With policy in a restrictive zone, the underlying outlook and shifting risk balance may require us to adjust our policy stance.” This statement was seen as an important signal increasing the likelihood of a rate cut.

Fed Board Member Christopher Waller also mentioned that additional rate cuts could be on the agenda over the next 3 to 6 months after September, noting that rates should be gradually brought down to the neutral level of around 3%.

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Economic Data and Market Expectations

Recent economic data supports a Fed rate cut decision. While there are signs of weakening in the labor market, inflation remains close to the Fed’s 2% target. This increases the likelihood of the central bank adopting a looser monetary policy.

Major investment banks share the same expectation of a rate cut. Institutions like Morgan Stanley, Goldman Sachs, and JP Morgan see a high probability of a 25 basis point rate cut in September.

What Happens If Rates Are Cut?

If the Fed decides to cut rates, this could have various effects on global markets. The U.S. dollar may weaken, emerging market currencies may strengthen, and gold prices could rise. Additionally, a rate cut could boost investor risk appetite, creating a positive atmosphere in stock markets.

In general, the likelihood of a Fed rate cut in September appears high. Market expectations and Fed officials’ statements send strong signals in this direction. This decision could have significant effects not only on the U.S. economy but also on global markets. Investors and economic observers are advised to closely monitor this critical decision to be announced on September 17.

Is There a Recession Risk?

A recession is a period of economic slowdown characterized by a noticeable decline in production, consumption, and employment. In other words, it is a phase where the economy “slows down.”

In more detail:

1. Production and GDP decline: A country experiences a recession when the total value of goods and services it produces (GDP) decreases for several consecutive quarters.
2. Employment falls: Companies may lay off workers if demand drops, causing unemployment to rise.
3. Consumer spending and investment decrease: People cut back on spending, and companies reduce new investments.
4. Overall economic slowdown: Banks become cautious in lending, markets fluctuate, and confidence declines.

In short, a recession is a period when the economy slows down and many people are negatively affected in terms of both jobs and income.

As a possible rate cut is discussed in September, the most critical question on investors’ minds is: “Is the U.S. economy heading into a recession?”

Economic data:

• Although the labor market remains strong, employment growth has slowed in some sectors.
• Consumer spending and industrial production are showing a more cautious trend compared to previous periods.
• Inflation remains stable around the Fed’s 2% target, but elevated levels maintain price pressures.

These data show that the Fed is facing a double-edged sword:

• Keeping rates high helps reduce inflation but can slow economic growth.
• Cutting rates supports growth but may push inflation higher again.

Most economists state that the U.S. is not technically in a recession but that growth is slowing. If the Fed cuts rates in September, this move will both boost market sentiment and aim to reduce growth risk. However, some experts emphasize that multiple rate cuts may be necessary, and this does not entirely eliminate the risk of a recession.

In other words, a rate cut is seen as a measure to reduce recession risk, but it is not guaranteed to eliminate it entirely. It is critical for investors to closely monitor economic data and carefully evaluate Fed statements.

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Rising Market Tensions

On Wednesday, data showed that Bitcoin briefly dipped to $112,565, marking its lowest point since August 3.

Ryan Lee, chief analyst at Bitget, said the decline reflects “rising nerves in the market.” According to Lee, the macroeconomic uncertainty surrounding Powell’s speech has triggered “fear spikes” among crypto traders. However, he noted that if the $112,000 support holds, it may not signal a reset but rather set the stage for the next leg of the bull run.

Inflation and Rate Cut Expectations

On August 12, the U.S. Consumer Price Index (CPI) showed a 2.7% year-over-year increase. While unchanged from June, the figure remains above the Fed’s 2% target.

Following this, expectations for a September rate cut decreased. According to CME Group’s FedWatch tool, the probability dropped to 82%, down from 94% a week earlier.

André Dragosch, Head of European Research at Bitwise, emphasized that potential Fed cuts in 2025 could be a major catalyst for the markets. He argued that lower rates would boost U.S. money supply and strongly support Bitcoin’s rally at least until the end of the year.

Corporations Keep Accumulating Bitcoin

Despite weaker sentiment among retail traders, institutional players continue to accumulate Bitcoin.

The number of entities holding Bitcoin has surged from 124 in early June to 297. This includes 169 public companies, 57 private firms, 44 investment funds, and 12 governments. Together, they now hold 3.67 million BTC — representing more than 17% of the total supply.

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US Non-Farm Payrolls Fall Below Expectations at 73K

The US Non-Farm Payrolls data came in at 73,000. This figure is well below the market expectation of 106,000. Last month’s figure was recorded at 147,000. Signs of a slowdown in the labor market have become more evident with this data.

Unemployment Rate Remained Stable

The US Unemployment Rate was announced at 4.2%, in line with expectations. Having been at 4.1% in the previous month, the unemployment rate showed a slight increase to 4.2% this month. This rate may align with the Federal Reserve’s expectation of a cooling labor market.

How Will Markets React?

The weaker-than-expected employment data could increase pressure on the Fed’s interest rate policy. Risk assets such as Bitcoin, altcoins, and the general crypto market may be affected by such economic indicators. If the Fed adopts a more cautious stance and moves toward potential rate cuts, long-biased movements could be seen in the markets.

This content is not intended as investment advice. Markets carry high risks, and it is important to conduct your own research before making any investment decisions.

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Trump: “Interest Rates Must Be Slashed Immediately and Significantly”

In his statement, Trump said:

“Powell is a stubborn moron. Interest rates must be slashed immediately and significantly. If he continues this resistance, the board should take control!”

These statements represent clear political pressure against the Fed’s cautious stance on rate cuts.

What Happened Recently?

In its recent meeting, the Fed decided to leave interest rates unchanged, a decision made by a vote of 9 to 2. Shortly after the decision, the President took to his own social media platform to renew his criticisms of Powell.

Trump: “Jerome ‘Too Late’ Powell Did It Again!”

Trump began his statement with: “Jerome ‘Too Late’ Powell did it again!!!” and called Powell a “TOTAL LOSER,” blaming the country’s economic troubles on what he sees as poor monetary policies.

Trump: “Costing Our Country Trillions of Dollars”

Trump didn’t stop at calling Powell “too late”; he also accused him of being “very angry, very dumb, and overly political.” These remarks are seen not only as personal attacks but also as a broader criticism of the Fed’s independence.

On social media, the President emphasized:

“Jerome ‘Too Late’ Powell did it again!!! It’s costing our country TRILLIONS OF DOLLARS.”

What Did Powell Say?

Fed Chair Jerome Powell, in a press conference, defended the decision to hold rates steady, explaining that they needed to observe the impact of Trump’s tariffs on inflation. He also stated that no decision had yet been made regarding the September meeting and that future actions would depend on economic data.

“Our decisions going forward will be determined by data. We do not make decisions in advance. All information will be evaluated.” – Jerome Powell

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