Brokerages Hold to Two Cuts Forecast Despite Fed Caution

The Federal Reserve on Wednesday delivered a 25 basis point cut to its policy rate, but signalled restraint about additional reductions in the near term, leaving a clear gap between central bank guidance and private sector forecasts. New policymaker projections showed a median expectation for a single quarter percentage point cut next year, unchanged from September, while many brokerages continue to expect a cumulative 50 basis points of easing through two cuts in 2026.

Fed officials voted for the reduction amid sharp divisions and multiple dissents, a signal that the committee remains closely split on the path of monetary policy. The central bank’s median projection for one 25 basis point decrease next year contrasts with the more aggressive timetable priced by many market participants and reaffirmed by major investment houses.

Citigroup and Morgan Stanley are among the firms most bullish on early easing, with Citigroup estimating cuts in January and March and Morgan Stanley pointing to January and April. Strategists at Goldman Sachs, Wells Fargo and Barclays cluster their expected cuts in March and June, while some institutions including Standard Chartered take a more conservative stance and project no cuts in 2026. Traders are currently pricing roughly 55.5 basis points of easing by the end of 2026, according to data compiled by LSEG.

The split has practical consequences for markets. If brokerages’ forecasts are right and the Fed relents sooner, long term bond yields could drift lower, supporting refinancing activity and easing financial conditions for households and businesses. If the Fed adheres to its cautious median path, shorter term rates could stay higher for longer, keeping mortgage rates and corporate borrowing costs elevated and weighing on rate sensitive sectors.

Brokerages point to softening labor market metrics as a key trigger for earlier cuts. Citigroup in particular bases its near term timing on its view that weakness in payrolls and hiring will prompt the Fed to ease. For the Fed, maintaining optionality reflects concern that premature loosening could reignite inflationary pressures or reverse recent progress toward price stability.

Economists and investors now face a classic policy coordination puzzle. Market pricing that diverges from official guidance increases the risk of abrupt revaluations if incoming data contradicts one camp’s assumptions. Volatility could rise around major economic releases and Federal Open Market Committee communications next year as participants test whether the Fed’s dissenting policymakers gain influence or whether incoming labor and inflation data tip the balance.

Longer term, the episode underscores how central bank credibility and communication matter for transmission. The Fed’s cautious dot plot and the persistence of broker forecasts for deeper easing reflect competing assessments of growth, inflation and labor dynamics. For households and firms planning borrowing and investment, the difference between one 25 basis point cut and two such moves over 2026 is material, and markets will watch job and inflation prints closely for signs which scenario is taking shape.