U.S. Federal Reserve Expected to Lower Interest Rates in 2026

(MENAFN) The US labor market has shown notable signs of slowing in recent months, and inflation figures have come in below forecasts, prompting analysts to anticipate further interest rate cuts by the Federal Reserve in 2026, following two reductions earlier this year.

Uncertainty over the Fed’s next moves has been heightened by disrupted public sector data caused by the US government shutdown, which has made policy projections more difficult.

With September inflation falling short of expectations, speculation that the Fed could lower rates at its upcoming meeting has intensified. Annual inflation rose slightly to 3% in September from 2.9% in August, still below market forecasts of 3.1%.

Data released prior to the government shutdown had already pointed to a cooling labor market. US non-farm payrolls rose by just 22,000 in August, missing estimates, while the unemployment rate ticked up from 4.2% to 4.3%. In September, private sector employment fell by 32,000 jobs, defying expectations for growth.

Rabobank Senior US Strategist Philip Marey told media that the weaker-than-expected inflation data supports a 25 basis point cut at the Fed’s October meeting.

Marey said data indicated continued weakness in the labor market, and that the Fed is likely to announce the end of the Federal Open Market Committee’s (FOMC) balance sheet reduction process.

He added that Fed Chair Jerome Powell may not provide much verbal guidance for December due to limited data releases.

Marey said he expects another 25 basis point rate cut in December given the downside risks stemming from the ongoing labor market weakness and the government shutdown.

"Only if inflation or employment data surprise to the upside, the FOMC may still decide to skip December. Looking ahead to next year, we expect the Fed to continue its cutting cycle at least until their estimate of the neutral rate is reached," he added.

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