JPMorgan Chase has issued a stark forecast contradicting market expectations, predicting the U.S. Federal Reserve will not cut interest rates in 2026 and may instead hike them in 2027. In a client note dated January 9, the bank's chief economist, Michael Feroli, argued that an accelerating U.S. economy and persistent core inflation above 3% will eliminate the justification for easing monetary policy.
Feroli stated, "Given this macroeconomic background, we don’t think even a new and relatively dovish Fed chairman could convince the FOMC to cut interest rates." JPMorgan's outlook stands in sharp contrast to market pricing. According to the CME FedWatch Tool, markets assign a 32% probability to two rate cuts in 2026, a 25% chance of one cut, and a 22% likelihood of three cuts. The probability of rates remaining completely unchanged is seen at just 8%.
This monetary policy debate is unfolding against a backdrop of significant political pressure. Former U.S. President Donald Trump has publicly criticized Fed Chair Jerome Powell, calling him "too late" and urging him to cut interest rates "meaningfully." Trump, who is expected to appoint a new Fed Chair in the coming months for a term beginning in May, has historically advocated for much lower rates, around 1%, compared to the current benchmark range of 3.5–3.75%.
Tensions escalated further over the weekend as Powell announced he had been summoned to testify before Congress by the U.S. Department of Justice regarding his testimony last year about Fed building renovation costs—an issue Trump has previously attempted to use as grounds for his removal. This clash sets the stage for monetary policy to become a key issue in the 2024 presidential election.
