JPMorgan Chase Abandons 2026 Fed Rate Cut Outlook, Predicts Hike in 2027

JPMorgan Chase has revised its outlook for U.S. Federal Reserve rate policy, no longer anticipating any rate cuts in 2026. Instead, the bank now forecasts a 25-basis-point rate hike in the third quarter of 2027. This shift reflects the latest economic data, particularly the U.S. labor market, which showed signs of resilience despite slower employment growth.

The decision to abandon the 2026 rate cut outlook was made after the most recent U.S. employment report, which indicated a slower-than-expected rise in hiring. However, the unemployment rate dropped to 4.4%, and wage growth remained solid. These conditions suggest that the Fed will be cautious in its rate-setting decisions.

Other major banks have also adjusted their forecasts. Goldman Sachs, Barclays, and Morgan Stanley have all delayed their rate cut expectations to mid-2026. These banks now project cuts in June and September, up from earlier forecasts of March and June. The revised forecasts reflect the broader consensus that the U.S. economy remains relatively strong and that a rapid easing cycle is unlikely in the near term.

Why Did This Happen?

The U.S. labor market, while showing signs of cooling, remains robust. In December, employment growth slowed to 50,000, below the revised November figure of 56,000. However, the unemployment rate fell to 4.4%, the lowest level in several months. Solid wage growth and a relatively low jobless rate suggest the Fed will continue to prioritize price stability over immediate easing.

JPMorgan noted that while a rate hike in 2027 is expected, the path to that decision could change. The bank added that it anticipates a tightening labor market in the second quarter of 2026, further reducing the likelihood of immediate rate cuts.

How Did Markets React?

The market quickly adjusted to the revised forecasts. The CME FedWatch tool indicated a 95% probability that the Fed would keep rates unchanged at its January meeting, up from 86% before the jobs report. This shift in expectations reflects the market's alignment with the banks' updated views on the Fed's policy path.

Investors also reacted to the broader geopolitical uncertainty surrounding the Fed. Fed Chair Jerome Powell recently disclosed a potential criminal investigation by the Trump administration, which he described as a pretext to exert political pressure on the central bank. The development raised concerns about the Fed's independence, prompting gold prices to surge and the U.S. dollar to weaken against other currencies.

The Fed's independence remains a key concern for global markets. Investors worry that political interference could undermine the institution's ability to make decisions based on economic data. This issue has intensified as Trump has repeatedly criticized the Fed for its slower-than-expected rate-cut strategy.

What Are Analysts Watching Next?

With JPMorgan and other banks shifting their expectations, the focus is now on key data releases. The December consumer price index (CPI) is the next major economic report that could influence the Fed's decision-making. A significant moderation in inflation would increase the likelihood of a rate cut later in 2026.

Analysts are also watching the broader macroeconomic environment. Goldman Sachs recently reduced its 12-month U.S. recession probability from 30% to 20%. This suggests that while a recession is still possible, the risk has diminished somewhat.

In the meantime, the Trump administration has taken additional steps to influence housing policy. President Trump has directed Fannie Mae and Freddie Mac to purchase $200 billion in mortgage bonds, a move intended to lower mortgage rates. This development could add another layer of complexity to the Fed's policy decisions.

The Fed's next policy meeting is scheduled for January 28, but no rate cut is currently expected. Traders have reassessed their expectations, with the probability of a cut in January now below 3%. June is now seen as the earliest possible month for a rate cut, with June and September being the most likely candidates among the major banks.

The evolving policy landscape will continue to shape investor behavior, particularly in the fixed-income and equity markets. With the Fed's independence under scrutiny and economic data mixed, the coming weeks will be critical in determining the central bank's next move.