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Investing.com--The Federal Reserve is unlikely to continue cutting rates in 2026, as easing trade uncertainty and President Donald Trump’s “one big beautiful bill” is expected to help boost economic growth next year, persuading the Fed halt monetary policy easing, Jefferies said.
“The economy will benefit from reduced uncertainty on trade policy, reduced uncertainty on fiscal policy, incentives for investment in the One Big Beautiful Bill, and some marginal benefit from rate cuts. Thus, we do not see much need for additional cuts in 2026 as things stand currently,” Jefferies said in a recent note.
Still, the year is unlikely to end with the Fed delivering its third rate cut of 2025, Jefferies said, even as Chair Jerome Powell regards it as “far from a foregone conclusion,” mainly because persuading Fed hawks to move again will take more compelling data.
Despite the lack of the data amid the ongoing U.S. government shutdown, the economic picture is much clearer than it was earlier this year when economic data was mixed showing pockets of both strength and weakness in key areas such as the labor market. As the unreliable narratives in the data have resolved, Jefferies said that "any trepidation behind our rate [forecast] was erased by these revisions."
While payroll revisions and a softening labor market prompted rate cuts in late 2025, Jefferies expects the combination of new fiscal stimulus and investment incentives will boost growth in the second half of next year. As well as fiscal stimulus, the prospect of Trump pivoting away from tariff battles and tax cut wrangling, is likely to persuade the Fed to halt easing campaign unless incoming data or Fed personnel changes alter the outlook, Jefferies added.