Rabobank Slashes 2026 Fed Rate Cut Forecast to Two

Rabobank Reduces 2026 Rate Cut Forecast from Three to Two

Rabobank has adjusted its outlook on U.S. monetary policy, now projecting the Federal Reserve will implement only two interest rate cuts in 2026, down from a previous forecast of three. Philip Marey, the bank's Senior US Strategist, detailed the revision, specifying expectations for one cut in September and a second in December 2026. The change is rooted in the perception that the Federal Open Market Committee (FOMC) is willing to tolerate periods of temporary inflation, giving it less urgency to ease monetary policy.

Inflation Persists Above 2.7% Target, Delaying Easing

This more hawkish forecast aligns with a market grappling with stubborn inflation and geopolitical pressures. Rising oil prices have fueled concerns that price pressures will persist, with some economists projecting U.S. inflation could reach 3.5% during the summer. The Fed's own Summary of Economic Projections reflects this challenge, with the forecast for Personal Consumption Expenditures (PCE) inflation for 2026 climbing to 2.7%. At the same time, the central bank sees stronger economic activity, lifting its real GDP growth projection to 2.4% from 2.3%.

Fed Leadership Change Looms as Key Variable

The long-term policy path is complicated by an anticipated leadership transition at the Federal Reserve. Kevin Warsh, who is expected to succeed Jerome Powell as Chair, has previously indicated support for lower rates. This creates a significant variable for future monetary policy decisions. According to Rabobank's Marey, Warsh's appointment could introduce a more dovish influence on the committee.

If (Fed board member Kevin) Warsh becomes the new Chair, he will definitely argue for rate cuts because of the downside risks to the labor market.

— Philip Marey, Senior US Strategist at Rabobank.

This potential shift highlights the tension between the Fed's inflation-fighting mandate and its goal of maintaining maximum employment, leaving the ultimate trajectory of interest rates in 2026 subject to considerable uncertainty.