TLDR:
- JP Morgan withdrew its January 2026 rate cut forecast, now predicting a rate hike in Q3 2027 instead.
- Goldman Sachs lowered US recession probability to 20% from 30% as labor market shows stability signs.
- Traders see 95% chance Fed keeps rates unchanged in January, up from 86% before employment data release.
- Political tensions rise as Powell reveals Trump administration threatened indictment over rate policy.
JP Morgan has withdrawn its forecast for US Federal Reserve rate cuts in 2026, marking a notable change in Wall Street expectations.
The investment bank now projects the central bank will maintain current rates throughout the year. This revision follows December employment data showing a resilient labor market despite slower job growth.
The shift reflects growing confidence that economic conditions will support steady monetary policy.
Major Banks Delay Rate Cut Expectations
JP Morgan now anticipates the Fed’s next move will be a rate hike in the third quarter of 2027. The bank previously expected a 25 basis point reduction in January 2026. Macquarie maintains its prediction for a rate increase in December 2026.
“If the labor market weakens again in the coming months, or if inflation falls materially, the Fed could still ease later this year,” JP Morgan stated in a Friday note.
The firm added it expects the labor market to tighten by the second quarter. The bank also projects the disinflation process will proceed gradually rather than rapidly.
Goldman Sachs and Barclays have also postponed their rate cut forecasts to mid-2026. Both institutions initially projected cuts in March and June but now expect reductions in September and December.
Morgan Stanley revised its timeline to June and September from January and April. Friday’s employment report showed job growth slowed more than expected in December. However, the unemployment rate dropped to 4.4% with solid wage increases.
Central Bank Independence Concerns Emerge
Traders assign a 95% probability to unchanged rates at the January Fed meeting, according to CME FedWatch tool data.
This represents an increase from 86% before the employment figures were released. Wells Fargo and BofA Global Research continue to expect cuts between March and July.
“If the labor market stabilizes as we expect, the FOMC will likely shift from risk management mode to normalization mode,” Goldman Sachs noted in a Sunday report.
The firm reduced its 12-month recession probability to 20% from 30%. These adjustments reflect improved economic confidence among major financial institutions.
Political tensions have intensified between President Donald Trump and Fed Chair Jerome Powell. Powell stated Sunday that the Trump administration threatened him with criminal indictment.
The Fed chair characterized this as a “pretext” to gain influence over interest rates. Trump has publicly advocated for dramatic rate cuts.
BofA Global Research observed that the “mix of data is consistent with our view that breakeven job growth might be falling even faster than the Fed will concede.”
The bank attributes this to potential labor supply shocks affecting employment dynamics. These indicators suggest ongoing complexities in interpreting current labor market conditions.
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Source: https://blockonomi.com/jp-morgan-abandons-2026-fed-rate-cut-forecast-projects-2027-hike-instead/