JPMorgan Chase Revises Fed Rate Outlook, No Longer Forecasts 2026 Rate Cuts

JPMorgan Chase has revised its outlook for Federal Reserve interest rates, no longer expecting a rate cut in 2026. Previously, the bank projected a 25-basis-point cut in January 2026. Instead, it now anticipates a 25-basis-point rate hike in the third quarter of 2027.

The shift in expectations reflects growing uncertainty around the Fed's policy trajectory. Political pressures and ongoing investigations into Fed Chair Jerome Powell have raised concerns about the central bank's independence.

As the Fed faces external challenges, investors and analysts are recalibrating their assumptions about monetary policy. Goldman Sachs, for example, has pushed back its rate cut forecasts to June and September 2026, citing softer labor data and evolving economic conditions.

Why Did This Happen?

JPMorgan Chase's updated forecast highlights the Fed's cautious stance amid political and economic uncertainties. The bank attributes its revised outlook to the possibility of a 25-basis-point hike in the third quarter of 2027, rather than a rate cut.

The Fed's independence has come under scrutiny due to escalating tensions between the Trump administration and Chair Powell. The administration has opened a criminal investigation into Powell, with critics suggesting it is a politically motivated move.

The political pressure has led to growing concerns about the Fed's ability to set rates based on economic data and not political influence. Powell has responded by defending the Fed's independence, emphasizing the importance of evidence-based monetary policy.

How Did Markets React?

Market reactions have been mixed. Gold prices surged to $4,600 per ounce as investors sought safe-haven assets. The U.S. dollar also weakened against most major currencies, reflecting concerns over central bank independence.

Stock futures initially slid in response to the Trump administration's actions. However, the broader market showed a measured reaction with no signs of panic selling. Investors are waiting for clarity on the implications for Fed policy and interest rate direction.

Goldman Sachs and Morgan Stanley have also adjusted their forecasts. Morgan Stanley now expects rate cuts in June and September 2026, while Citigroup anticipates at least two 25-basis-point cuts in the year.

What Are Analysts Watching Next?

Analysts are closely monitoring the political developments surrounding the Fed. Vishnu Varathan of Mizuho noted that the independence of the Fed is now a key issue, with potential implications for monetary policy and market volatility.

Andrew Lilley, chief rates strategist at Barrenjoey, suggested that Trump is trying to exert pressure on the Fed without expecting direct control. The uncertainty has led to heightened market vigilance.

The upcoming earnings reports from major Wall Street banks will also provide insights into the financial sector's performance and consumer spending trends. These reports are expected to offer additional clues about the Fed's policy direction.

China's recent announcement of a package of fiscal and financial policies to boost domestic demand is also being watched. The government plans to expand consumption support and reduce financing costs for enterprises.

The revised forecasts and ongoing political tensions highlight the complexity of the current economic landscape. Investors are navigating a mix of expectations, with some anticipating rate cuts and others warning of prolonged uncertainty.