How many interest rate cuts could the Federal Reserve deliver this year? What markets expect now

Federal reserve rate cuts 2026: For investors, the Federal Reserve’s rate decisions aren’t abstract policy debates, they can mean rising stock prices, cheaper loans, and stronger consumer spending. That’s why, for months, markets have been locked in on a simple expectation: two quarter-percentage-point cuts this year.

Why the Fed held rates steady in January

Two cuts felt predictable. Anything more seemed unlikely. But that certainty is starting to fade.

In January, the Fed chose not to cut rates at all, even as pressure mounted from the White House to lower borrowing costs dramatically.


Fed Chair Jerome Powell made it clear that politics wouldn’t dictate policy. Instead, he said the central bank would let economic data, especially inflation and job, guide its decisions. The pause frustrated US president Donald Trump, but the Fed stayed its course.

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Inflation data that could change the outlook

Now, the data may be shifting the outlook. Inflation has remained stubbornly above the Fed’s 2% target for months. But in January, consumer prices rose 2.4% year over year, slightly below expectations of 2.5%. Core inflation, which excludes food and energy, came in at 2.5%, the lowest since April 2021. It’s a small difference, but in Fed watching, small differences matter.

If inflation continues edging toward 2%, the door could open wider than markets once thought. Instead of just two cuts, a third or even a fourth, quarter-point reduction could come into play, as per The Motley Fool report.

What Fed officials are signaling about future cuts

Some officials are beginning to acknowledge that possibility. Federal Reserve Bank of Chicago President Austan Goolsbee said that if progress toward 2% continues, “I still think there's several more rate cuts that can happen in 2026," as quoted by The Motley Fool. That kind of comment has helped fuel a noticeable shift in expectations.

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What markets are pricing in now

The Fed Funds Futures Market now sees a 43% chance of three or more cuts in 2026, up sharply from 25.6% just a month ago. That jump reflects growing belief that the central bank may lean toward additional easing if inflation keeps cooling.

Leadership change and its potential impact on Fed rates

There’s also a leadership change on the horizon. Powell’s term ends in mid-May, and he is likely to be replaced by Trump nominee Kevin Warsh. Warsh has indicated he would like to cut the Fed’s target rate while also shrinking its balance sheet, a combination that makes the future path of borrowing costs less certain but suggests a willingness to consider more aggressive rate reductions.

FAQs

How many Fed rate cuts were markets expecting this year?

For months, investors were pricing in just two quarter-point cuts.

Did the Fed cut rates in January?

No, the Fed decided to hold rates steady.