The Federal Reserve is unlikely to continue cutting interest rates in 2026, as easing trade uncertainty and President Donald Trump’s Big Beautiful Bill are expected to help boost economic growth next year, persuading the Fed to halt monetary policy easing, according to Jefferies.
The economy will benefit from reduced uncertainty surrounding trade policy, reduced uncertainty surrounding fiscal policy, investment incentives from the Big Beautiful Bill, and some marginal benefits from lower interest rates. Therefore, we do not see a significant need for a further rate cut in 2026, as we do currently see, according to a recent note from Jefferies.
However, the year is unlikely to end with the Fed implementing its third interest rate cut in 2025, Jefferies said, even though Chairman Jerome Powell considers that far from certain, mainly because convincing the Fed's hawks to act again will require more compelling data.
Despite the lack of data amid the ongoing US government shutdown, the economic picture is much clearer than it was earlier this year when mixed economic data showed pockets of strength and weakness in key areas such as the labor market. With unreliable narratives in the data resolved, Jefferies said any fears behind their interest rate forecasts have been dispelled by these revisions.
While wage revisions and a weakening labor market prompted interest rate cuts in late 2025, Jefferies expects a new mix of fiscal stimulus and investment incentives to bolster growth in the second half of next year. In addition to fiscal stimulus, the prospect of Trump shifting away from tariff battles and tax cut manipulation is likely to persuade the Fed to pause its easing campaign unless incoming data or Fed staff changes alter the outlook, Jefferies added.
