BlackRock strategists predict that the US Federal Reserve (Fed) will have very limited room to cut interest rates in 2026, unless the labor market deteriorates significantly.
A report on December 24th, citing LSEG data, suggests the market currently expects the Fed to implement two interest rate cuts in 2026, but BlackRock believes the Fed is already near a neutral interest rate level after the current easing cycle.
- BlackRock: The Fed may only cut interest rates to a limited extent in 2026.
- Total interest rate cuts this cycle: 175 basis points.
- LSEG: Market expects two interest rate cuts in 2026.
Fed interest rate forecast for 2026: room for cuts is shrinking.
BlackRock believes the Fed will only make limited interest rate cuts in 2026 because it has already approached a neutral rate level after a total reduction of 175 basis points.
According to the report, BlackRock strategists Amanda Lynam and Dominique Bly assess that with a cumulative cut of 175 basis points in this cycle, the Fed is approaching neutral. Once it's near that threshold, the room for further cuts in 2026 becomes limited, implying that further aggressive monetary policy easing is unlikely.
A condition that could allow for expanded room for rate cuts is a significant weakening of the economy in the employment sector. The report emphasizes that without a sharp decline in the labor market, the likelihood of the Fed further deep interest rate cuts in 2026 is significantly limited.
Market expectations: Two interest rate cuts in 2026
LSEG data indicates that the market currently expects the Fed to implement two interest rate cuts in 2026.
This expectation reflects the market's valuation of the 2026 policy trajectory, but could deviate from BlackRock's scenario if the Fed prioritizes keeping interest rates near neutral. With cryptocurrencies, changes in interest rate expectations typically impact risk sentiment, but the original text doesn't offer any specific projections for the cryptocurrency market.
