JPMorgan has a stark message on the next Fed rate cut

JPMorgan’s chief economist, Michael Feroli, has made a bold prediction that the Federal Reserve will not cut interest rates at all in 2026. In fact, he forecasts a 25 basis point rate hike in the third quarter of 2027, bringing the upper band of the federal funds rate to 4.00%. This projection is at odds with the Federal Reserve’s own projections and most of Wall Street, highlighting the ongoing uncertainty in the economic landscape.

Feroli argues that two main factors are keeping the Fed from cutting rates: a resilient labor market and stubbornly high inflation. Despite an unemployment rate of 4.4%, the Fed is hesitant to ease monetary policy as core inflation remains above the 2% target. Feroli believes that although there is an inflation problem, it is not insurmountable and should improve over time given the current state of the economy.

The recent conflict in the Middle East has added a new layer of complexity to the situation. The surge in oil prices resulting from the Iran war has put upward pressure on inflation, making it difficult for the Fed to justify rate cuts. Even Fed Chair Jerome Powell has expressed caution, stating that a rate cut is not guaranteed if progress is not seen in the economy.

While JPMorgan’s forecast is not set in stone, it reflects a growing sentiment on Wall Street that rate cuts may be delayed. Other major financial institutions like Goldman Sachs, Barclays, and Morgan Stanley have also pushed back their rate cut expectations. The CME Group FedWatch Tool indicates a low probability of a rate cut by the end of 2026.

For borrowers, a prolonged hold on interest rates means higher costs across the board. Mortgage rates, auto loans, credit card rates, and personal loan costs are likely to remain elevated for longer. If JPMorgan’s forecast holds true, the 30-year fixed mortgage rate could stay above 6% throughout 2026.

The leadership transition at the Fed adds another element of uncertainty. Powell’s term as Fed chair expires in May 2026, and President Trump has nominated Kevin Warsh as his replacement. However, even with a potentially more dovish chair, policy changes may be limited without consensus among the Federal Open Market Committee.

In conclusion, the current economic conditions, including the unresolved conflict in the Middle East, elevated oil prices, and persistent inflation, suggest that the Fed may not have the conditions necessary to cut rates in the near future. JPMorgan’s cautious outlook reflects the ongoing challenges facing the central bank as it navigates a complex and uncertain economic environment.