Economists see two Fed rate cuts in 2026 following December move

Federal Reserve officials will vote to cut interest rates again next week to safeguard against rising risks of a sharp deterioration in the labor market, according to economists surveyed by Bloomberg.

The median respondent sees the U.S. central bank following up that move with two more quarter-point cuts in 2026, starting in March. Next week’s cut would extend a string of reductions at the last two policy meetings, in September and October.

A sizable majority also expect Fed officials to again state that “downside risks to employment rose in recent months,” as they did in October. The Fed will announce the decision on Dec. 10 at 2 p.m. in Washington, and Chair Jerome Powell will hold a press conference 30 minutes later.

“Fed doves appear to slightly be in primacy over the hawks,” said Dennis Shen, an economist at Scope Ratings. “If the Federal Reserve does ease again, we would expect Powell to emphasize a temporary pause afterward, awaiting further economic signals.”

Policymakers are deeply divided over the balance of risks between their mandates of price stability and full employment. A number of regional Fed bank presidents have expressed concerns about persistent inflation as price increases from tariffs make their way to consumers. Others have argued there’s still room for another cut to shore up the labor market.

Economic data released since the last meeting hasn’t given them much clarity. Large companies including Verizon Communications Inc. and Amazon.com Inc. have announced significant job cuts in recent months, but weekly filings for unemployment insurance remain subdued.

The Bureau of Labor Statistics, meanwhile, has yet to publish an updated inflation report after warning it would take some time to resume regular publication of economic data following a government shutdown that spanned much of October and November. The latest official figures showed the consumer price index accelerated to 3% in September.

Most economists said a significant weakening of the job market remains the main challenge ahead for policymakers. Only 18% of respondents saw more meaningful inflation as the greater risk. The survey of 41 economists was conducted from Nov. 28 to Dec. 3.

Fed officials will also release a new set of economic projections next week. The median respondent said they expect policymakers to nudge their forecast for economic growth this year higher, while trimming estimates for inflation. The projected unemployment rate for 2026 could also see a slight upward revision.

Dissents Ahead

The vast majority of respondents see another split vote next week as tensions grow on the central bank’s rate-setting committee. Kansas City Fed President Jeff Schmid is expected to dissent again after voting against the October rate cut. More than one-third also believe St. Louis Fed President Alberto Musalem will lodge a dissenting vote, given his recent comments expressing concerns about inflation.

Fed Gov. Stephen Miran, meanwhile, is expected to vote against a quarter-point cut again after dissenting in favor of half-point reductions in September and October.

The U.S. central bank in recent years has forged monetary policy decisions by consensus. Almost all economists now see the Federal Open Market Committee shifting toward a process characterized by majority rule, according to the survey, though respondents were evenly split on whether or not most meetings in 2026 would see dissenting votes.

Most economists believe the administration will pick National Economic Council Director Kevin Hassett to succeed Powell when his term as chair expires in May. Hassett is President Donald Trump’s likely choice to lead the central bank, people familiar with the matter told Bloomberg last week. This week, Trump announced he would make his choice known early next year, and referred to Hassett as “a potential Fed chair.”

Selecting from the administration’s shortlist, however, most respondents said Fed Gov. Christopher Waller would be the best pick.

“Waller has institutional knowledge and experience as a Fed governor. It is also likely that he has better working relationships with other FOMC members,” said Thomas Simons, senior economist at Jefferies. “However, we have no reason to think that Hassett is a bad choice.”