:title: Fed ================== 2026 Fed Forecasts ================== My 2026 forecasts (and bets) related to the `Fed`_. ------ Thesis ------ The US economy will be fine this year. Not great, not terrible. There won't be a deflationary crisis that forces the Fed to resurrect the 2020 playbook, nor will there be an inflationary crisis like 2022. It will be like 2025. The Fed will have to walk a tightrope between inflation and unemployment. If they push too hard on policies to fight inflation, they might trigger an unemployment crisis. And vice versa. I think the Fed fears inflation more than unemployment. The White House's attack on the Fed's independence will backfire. The Fed is now going to wait longer to cut the `Federal Funds Rate`_ (FFR), and they're going to do less cuts overall. The shutdown disrupted the flow of economic data. The Fed will move slower because it's less sure of the data it's seeing. ------------------ Federal Funds Rate ------------------ FFR will end the year at 2.75-3.0% (3 cuts) or 3.0-3.25% (2 cuts). This is the sweet spot for giving the labor market some support, while also making sure that inflation stays in check. My initial forecast for `What will be the midpoint of the US federal funds target range at the end of 2026?`_: .. csv-table:: :header: "Answer", "Probability" "Less than 2.25%", "10%" "At least 2.25%, but less than 2.75%", "5%" "At least 2.75%, but less than 3.25%", "60%" "At least 3.25%, but less than 3.75%", "15%" "3.75% or more", "10%" Rationale for each answer: * "Less than 2.25%" is possible in the event of a panic like 2008 or 2020. * "At least 2.25%, but less than 2.75%" is the least likely in my book. The Fed would have to cut in 4 or 5 meetings, or do cuts larger than 25 bps. That's too risky on the inflation front. * "At least 2.75%, but less than 3.25%" is 2 or 3 cuts. That sounds most likely. The labor market will show enough weakness to necessitate some cuts, but the Fed will be careful not to overdo it. * "At least 3.25%, but less than 3.75%" is 0 or 1 cuts. It's possible that the Fed does a single cut, and then inflation comes roaring back and they have to stop the cuts. * 3.75% or more" is also possible if inflation comes roaring back before April, which is the earliest that the Fed will plausibly begin FFR cuts. January ======= The Fed is definitely not cutting in January. Powell already signaled as much in the December 2025 press conference. On top of that, a rate cut is now politically toxic in the short term because it's synonymous with acquiescing to Trump. On a related note, the era of dissenting votes is gone. Trump's mouthpiece (Miran) will be the only dissenting vote. Everyone else will vote in favor, as a symbolic act of asserting Fed independence. `Kalshi`_ positions: .. csv-table:: :header: "Event", "Market", "Side", "Contracts", "Price" "`Fed decision in January?`_", "Fed maintains rate", "Yes", "50", "97.3" "`How many dissenting votes at the next Fed meeting?`_", "1", "Yes", "500", "38.76" March ===== They'll probably hold in March. Inflation will still be too high. The labor market might be showing some cracks, but not enough to prompt action. .. csv-table:: :header: "Event", "Market", "Side", "Contracts", "Price" "`Fed decision in March?`_", "Fed maintains rate", "Yes", "50", "73.4" April ===== My non-consensus view is that the rate cuts start here. They'll have confidence in the economic data again, and it will look surprisingly bad. .. csv-table:: :header: "Event", "Market", "Side", "Contracts", "Price" "`Fed decision in April?`_", "Cut 25bps", "Yes", "100", "30" June ==== Rate cuts continue, or start here. .. csv-table:: :header: "Event", "Market", "Side", "Contracts", "Price" "`Fed decision in June?`_", "Cut 25bps", "Yes", "100", "35.9" July ==== Rate cuts maybe continue. .. csv-table:: :header: "Event", "Market", "Side", "Contracts", "Price" "`Fed decision in July?`_", "Cut 25bps", "Yes", "50", "44" September ========= Wait-and-see mode starts. October ======= Wait-and-see mode continues. December ======== Wait-and-see mode continues. .. _Federal Funds Rate: https://en.wikipedia.org/wiki/Federal_funds_rate .. _Good Judgment Open: https://www.gjopen.com .. _How many dissenting votes at the next Fed meeting?: https://kalshi.com/markets/kxfomcdissentcount/fomc-dissent-count/kxfomcdissentcount-26jan .. _Fed: https://en.wikipedia.org/wiki/Federal_Reserve .. _Fed decision in April?: https://kalshi.com/markets/kxfeddecision/fed-meeting/kxfeddecision-26apr .. _Fed decision in December?: https://kalshi.com/markets/kxfeddecision/fed-meeting/kxfeddecision-26dec .. _Fed decision in January?: https://kalshi.com/markets/kxfeddecision/fed-meeting/kxfeddecision-26jan .. _Fed decision in June?: https://kalshi.com/markets/kxfeddecision/fed-meeting/kxfeddecision-26jun .. _Fed decision in July?: https://kalshi.com/markets/kxfeddecision/fed-meeting/kxfeddecision-26jul .. _Fed decision in March?: https://kalshi.com/markets/kxfeddecision/fed-meeting/kxfeddecision-26mar .. _Fed decision in October?: https://kalshi.com/markets/kxfeddecision/fed-meeting/kxfeddecision-26oct .. _Fed decision in September?: https://kalshi.com/markets/kxfeddecision/fed-meeting/kxfeddecision-26sep .. _Kalshi: https://kalshi.com .. _What will be the midpoint of the US federal funds target range at the end of 2026?: https://www.gjopen.com/questions/4963