Wall Street giants Citigroup, JPMorgan, and Wells Fargo have significantly revised their expectations for Federal Reserve interest rate cuts in 2026, pushing forecasts later into the year or eliminating them entirely. The primary drivers cited are increased geopolitical risks from the Iran conflict and persistent inflation concerns.
Citigroup has postponed its forecast for the first Fed rate cut from June to September. Meanwhile, JPMorgan CEO Jamie Dimon, in his annual shareholder letter, warned that energy and commodity shocks from the war could make inflation "permanent" and push interest rates higher than markets anticipate. He stated that markets have effectively ruled out a rate cut this year.
In a similar move, Wells Fargo Investment Institute announced it no longer expects any Fed rate cuts in 2026, a reversal from its previous prediction of two cuts. The institute's strategists noted that the "balance of risks now encourages the Fed to be patient" in a high-uncertainty environment.
Current market pricing, as reflected in the CME FedWatch Tool, aligns with this cautious outlook. The probability of the Fed holding rates steady in April is priced at 99.5%, with a 0.5% chance of a hike. For June, the odds are 95.4% for unchanged rates, 4.1% for a cut, and 0.5% for an increase.
Supporting the case for a patient Fed is a resilient U.S. labor market. March employment data showed a gain of 178,000 jobs, recovering from February's sharp drop. The unemployment rate fell to 4.3%. However, Wall Street Journal reporter Nick Timiraos highlighted that underlying trends, such as slowed wage growth and modest average monthly job gains, suggest the market's strength may be cooling, potentially allowing the Fed to maintain a wait-and-see stance on policy.
