Experts Expect Fed to Keep Cutting Rates in 2026

(MENAFN) The U.S. Federal Reserve is widely anticipated to keep interest rates unchanged at its upcoming meeting, even as analysts project further cuts later this year, driven by mounting labor market vulnerabilities and escalating economic spillovers from the Middle East conflict, experts told media.

The central bank is forecast to hold borrowing costs steady within the 3.5–3.75% range this week, with policymakers signaling caution as war-driven energy price surges threaten to reignite inflationary pressures across the broader economy.

Philip Marey, senior U.S. strategist at Rabobank, confirmed the expected hold, warning that internal dissent may resurface. "Fed Board Member Stephen Miran may once again vote against the decision," Marey told media.

All eyes will be on Fed Chair Jerome Powell's post-meeting remarks, which are expected to offer critical signals regarding how incoming economic data — particularly figures reflecting the war's financial footprint — will shape the bank's policy trajectory going forward.

Marey projects two rate reductions this year, penciled in for September and December. He also noted that Kevin Warsh — tapped by former President Trump to succeed Powell as Fed Chair — is expected to pursue a more aggressive easing path than the single cut reflected in the bank's most recent projections, once Senate confirmation clears. However, Marey cautioned that Warsh's effectiveness will hinge on economic conditions shaped by a conflict with no clear resolution on the horizon.

Compounding the uncertainty is the ambiguity surrounding Powell's tenure. Should Warsh's confirmation face delays, Powell could remain as interim chair through June, making it unclear whether this week's meeting will be his last as the head of the institution.

Marey further warned that surging energy costs tied to the Middle East war are already filtering through to consumer prices, creating a dual pressure on the Fed. Persistent inflation would embolden hawks within the institution, while any deterioration in employment figures would strengthen the case for doves pushing for faster easing.

Oliver Allen, senior U.S. economist at Pantheon Macroeconomics, echoed that assessment, describing this week's session as one likely to pass without drama. He told media that the Fed is carefully weighing an incomplete labor market recovery against the threat of elevated core inflation and a deepening energy shock.

Allen indicated the meeting is likely to reinforce a wait-and-see posture. "This week's meeting may signal that the Fed will continue to remain on hold and wait for clearer signs of how the energy shock will affect the economy before moving forward, noting that the bank will issue further rate cuts, depending on the labor market's and core inflation's outlook," he said.

A clearer picture on both fronts is not expected to emerge until the second half of the year. Allen projected that the Fed would likely deliver 25-basis-point cuts across three back-to-back meetings beginning in September — though he acknowledged those reductions could be pushed slightly further back depending on how conditions evolve.

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