The Fed Signals a Rate Cut in 2026

The Federal Reserve has brought borrowing costs to their lowest level since 2022. However, the committee remains divided, with three members voting against the reduction, a scenario not seen since September 2019. Stephen Miran advocated for a more significant cut of 50 basis points, while Austan Goolsbee and Jeffrey Schmid argued for maintaining the current rates. Meanwhile, policymakers have kept their projections for the federal funds rate unchanged since September, indicating only a 25 basis point cut in 2026. In terms of GDP, the Fed has revised its growth forecasts upward for 2025, now at 1.7% compared to the previous estimate of 1.6%, and for 2026, now at 2.3% instead of 1.8%. The PCE inflation rate is expected to be slightly lower this year at 2.9% (down from 3.0%) and next year at 2.4% (down from 2.6%). Unemployment rate forecasts remain unchanged at 4.5% for 2025 and 4.4% for 2026.