An analysis of the current financial sector situation indicates an expected decrease in Fed interest rates. Predictions suggest this could occur several times by mid-2026.
Fed Forecasts and Market Expectations
Since pausing interest rate cuts in January, the likelihood of a reduction from the Fed continues to grow. Currently, 88.1% of the market expects a 25 basis point cut, while the probability of a 50 basis point reduction is at 11.9%.
Overall State of the US Labor Market
Wells Fargo analysts note that the American labor market is unstable, which is the primary factor influencing the outlook for a more dovish monetary policy. Reduced labor market activity may be linked to the anticipated changes in the economy.
Wells Fargo's Concluding Thoughts
In their note published on Wednesday, Wells Fargo stated that they expect the Fed to lower the federal funds rate by 25 basis points over the next three meetings, aiming for a range of 3.50%-3.75% by year-end. Additional cuts are also anticipated in March and June of next year.
Thus, the expectations for Fed interest rate cuts reflect the current instability in the labor market and potential shifts in the economic policy of the country.
