Markets see ‘shallow’ rate cut path through 2026: Strategist

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The Federal Reserve announced its decision to hold interest rates at their current levels on Wednesday. Fed Chair Jerome Powell reiterated the central bank’s need to observe further progress in taming inflation before initiating a rate-cutting cycle. Joining the Morning Brief to provide insights into the rate cut outlook is UBS Global Management Head of Taxable Fixed Income Strategy Leslie Falconio.

Falconio highlights that the market had adopted a hawkish stance leading up to the Fed meeting, effectively pricing out numerous rate cuts — with markets now factoring in just one rate cut in 2024 and “a very shallow cutting path” in 2025 and 2026. She acknowledges the market’s speculation about a potential rate hike, emphasizing that “the important part” was Fed Chair Powell’s clarification on the path forward for rate cuts.

Addressing the inflation target, Falconio emphasizes the Fed’s need for “continued progress lower” in economic data. While the target remains at 2%, she believes that the exact figure may not necessarily need to be attained, as long as the disinflationary trend persists.

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This post was written by Angel Smith

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