JPMorgan Chase's Chief US Economist, Michael Feroli, has projected that the Federal Reserve will implement no interest rate cuts throughout 2026. He anticipates the next policy adjustment will be a 25-basis-point rate increase in the third quarter of 2027. This move would raise the upper limit of the federal funds rate to 4.00%, compared to the current target range of 3.50% to 3.75%. This forecast places JPMorgan in stark contrast with the Fed's own interest rate projections and the majority of Wall Street institutions. With ongoing conflict in Iran persistently driving up energy prices and inflation proving stubborn, this divergence shows no signs of narrowing.
Why does Feroli believe rate cuts are unlikely? In a March interview, he outlined his perspective, pointing to two primary factors compelling the Fed to maintain a wait-and-see approach: first, an excessively resilient labor market that does not justify policy easing; and second, inflation persistently running above the Fed's 2% policy target. The current US unemployment rate stands at 4.4%, while core inflation is decelerating too slowly to provide sufficient justification for the Fed to cut rates. "We do have an inflation problem," Feroli stated, while simultaneously emphasizing that the issue is not "unsolvable." In his view, US economic fundamentals are "quite favorable," and inflation will "gradually improve over time."
The conflict involving Iran adds further complexity to the situation. "The Middle East conflict introduces fresh uncertainty," Feroli noted. Since the escalation of hostilities in late February, international oil prices have surged significantly, introducing new upward pressure on inflation just as the Fed was anticipating a cooling trend. The Fed's March policy statement also acknowledged that the impact of Middle Eastern developments on the US economy remains "unclear." Even Fed Chair Jerome Powell has adopted a cautious stance. During his March press conference, he indicated that the single 2026 rate cut projected in the Fed's dot plot is not a certainty: "If inflation does not improve as expected, rate cuts will not happen."
Feroli specifically emphasized that his forecast is not conclusive. JPMorgan, citing his views, noted that "if the labor market weakens in the coming months or if inflation shows significant decline, the Fed could still potentially ease policy later this year."
**Market Pricing: Rate Cut Expectations Continue to Cool** The market is gradually aligning closer to Feroli's outlook. The CME Group's FedWatch Tool, which calculates probabilities based on futures prices, indicates just an 8.1% chance of a rate cut by December. In late March, futures traders even priced in a greater than 52% probability of a rate hike by the end of 2026. The Fed's next policy meeting is scheduled for April 29-30, and markets widely expect no policy action at that time. The focus has now shifted from whether the Fed will pause hiking rates to how long elevated interest rates will be maintained.
**Views from Other Major Banks: A Collective Shift Toward Hawkishness** While JPMorgan currently holds the most hawkish position on Wall Street, other major banks have also shifted their expectations in a similar direction. Goldman Sachs, Barclays, and Morgan Stanley have all pushed back their projected timing for the start of Fed rate cuts from mid-year expectations, though they still anticipate the Fed will begin cutting rates in 2026.
**What Does This Mean?** For borrowers, prolonged higher interest rates mean comprehensively increased costs. Mortgage rates, auto loans, credit card rates, and personal loan costs will remain elevated for an extended period. If JPMorgan's prediction proves accurate, the average 30-year fixed mortgage rate would likely stay above 6% throughout 2026. Additionally, the upcoming leadership transition at the Fed warrants attention. Chair Powell's term expires in May 2026, and former President Trump has nominated ex-Fed Governor Kevin Warsh as a potential successor. However, Feroli cautioned that even a dovish new chair would find it difficult to easily alter policy: "The Fed chair cannot unilaterally set policy; a new chair must build consensus within the Federal Open Market Committee (FOMC)."
With the Iran conflict unresolved, oil prices high, and inflation exhibiting persistence, the conditions necessary for the Fed to cut interest rates have not yet materialized. JPMorgan's assessment is that such conditions may not arrive for a considerable time.
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