Wells Fargo reports Federal Reserve plans to reduce interest rates five times by mid-2026

Wells Fargo reports Federal Reserve plans to reduce interest rates five times by mid-2026

Wells Fargo analysts predict the Federal Reserve (the Fed) will implement five rate cuts by mid-2026, according to a recent report. The bank's projection includes a series of quarter-point cuts, with the first three scheduled for the next three meetings, bringing the target range down to 3.50%-3.75% by year-end. Two further cuts are anticipated in March and June of 2026, lowering the terminal rate to 3.00%-3.25% .

The softer outlook is largely driven by a weakening labor market. Wells Fargo notes that the U.S. labor market is in a precarious position, with a three-month average of 29,000 nonfarm payroll growth in August and a fresh cycle-high unemployment rate of 4.3% . The August jobs report, which showed a mere 22,000 jobs added, further solidified expectations for a September rate cut .

Inflation remains a constraint, with the core PCE deflator up 2.9% year-over-year, but inflation expectations have been well-behaved of late . Despite the rate cuts, Wells Fargo forecasts an above-consensus 2.4% Q4/Q4 growth rate for real GDP in 2026, driven by fiscal stimulus and the lagged effects of rate cuts .

The Fed's rate cuts are expected to have varied impacts across sectors. Companies sensitive to borrowing costs, such as homebuilders and automotive manufacturers, are likely to benefit, while financial institutions may face headwinds. The broader economic uncertainty could temper enthusiasm for traditionally defensive sectors like utility companies, despite their attractive dividends .

The recent jobs report underscores the Fed's dual mandate of maintaining low inflation and maximum employment. The rapid deterioration in the labor market has shifted the focus towards employment, necessitating a strategic pivot to prevent a more significant economic downturn . The Fed's rate cuts aim to stimulate economic growth, but the underlying labor market weakness persists, creating a complex outlook for the months ahead.

As the Fed navigates the shifting sands of the economy, investors and financial professionals should closely monitor the evolving labor market data and the central bank's policy responses. The economic uncertainty and potential slowing suggest a delicate balance between combating inflation and sustaining growth, with the Fed's rate cuts playing a pivotal role in shaping the future trajectory of the U.S. economy.

: Investing.com -- The Federal Reserve is set to embark on a steady easing cycle, delivering five rate cuts through mid-2026, according to Wells Fargo analysts.
: Markets.financialcontent.com -- A surprisingly weak US jobs report for August 2025 has sent a clear signal through financial markets, solidifying expectations that the Federal Reserve will implement an interest rate cut at its upcoming September meeting.