Fed To Hold Rates Through March 2026 on Strong Growth

• The U.S. Federal Reserve is expected to hold its key interest rate through this quarter, and possibly until Chair Jerome Powell's tenure ends in May 2026, according to a majority of economists polled by Reuters, a shift from last month when most expected at least one cut by March 2026.
• Expectations that the U.S. economy will continue growing strongly argue against near-term cuts as inflation remains above the Fed's 2% target. However, most economists still expect at least two reductions later this year.
• Moreover, the Fed is expected to keep rates at 3.50%-3.75% at its January 27-28 meeting, with 58% of the polled economists forecasting no change this quarter compared with at least one reduction in last month's poll. While there was no clear consensus on rates beyond this quarter, a slight majority of respondents expect rate cuts to resume as soon as Powell's tenure as the Fed chair ends in May 2026.
• Additionally, the U.S. economy, which grew at a robust pace of 4.3% in the third quarter, is expected to expand 2.3% this year, up from 2.2% last year, poll medians showed. That was upgraded from 2% predicted last month and above the Fed's estimated non-inflationary rate of 1.8%.
• Growth is forecast to average 2% through 2028 while the unemployment rate is expected to remain steady, averaging 4.5% this year. According to the lead U.S. economist at Oxford Economics, a very strong U.S. GDP growth is expected in 2026, driven by further investments in AI, as well as the tax cuts under the fiscal bill.
• The change in the Personal Consumption Expenditures index, the Fed's preferred inflation measure, is expected to stay above the 2% target for the remainder of this year and average above it in each calendar year through 2028.

(Source: Reuters)