Global banks hold significantly divergent expectations regarding the Federal Reserve’s interest rate path. Brian Martin, Head of G3 Economic Research at ANZ Bank, argues that the pause in interest rate cuts will not last long, while J.P. Morgan paints a more cautious picture.
ANZ Bank's Outlook: A Return to Rate Cuts
According to ANZ, even if the Fed keeps rates unchanged at its January meeting, it could soon return to a rate-cutting cycle. Martin predicts that the Federal Open Market Committee could lower the federal funds target range to 3.00%–3.25% by mid-year with two 25 basis point cuts in March and June. This expectation is based on the view that US inflation will gradually moderate by 2026, with the diminishing impact of tariffs on prices, a slowdown in the pace of wage growth, and a cooling in housing inflation.
J.P. Morgan's Forecast: Policy Stability Through 2026
In contrast, J.P. Morgan’s chief US economist, Michael Feroli, believes the Fed has completed its rate cuts and will keep policy stable throughout 2026. In a note to clients, Feroli stated, “We expect the Fed to maintain interest rates throughout 2026, with the next move likely to be a rate hike in 2027.”
Feroli’s forecast comes after interest rate cuts in the fall and winter of 2025, which brought mortgage rates to their lowest levels in over a year.