Short Answer
Both the model and the market expect exactly 2 rate cuts in 2026, with no compelling evidence of mispricing.
1. Executive Verdict
- Persistent FY2026 fiscal deficits pressure core inflation, constraining FOMC easing.
- FOMC's revised neutral rate projection implies higher policy rates, limiting cuts.
- FOMC emphasizes a reactive, data-dependent policy, not pre-planned easing.
- Cooling labor market not yet requiring a sharp, non-inflationary policy pivot.
Who Wins and Why
| Outcome | Market | Model | Why |
|---|---|---|---|
| Exactly 0 cuts | 9% | 13.7% | Current economic data and central bank communications indicate a more hawkish stance, favoring zero cuts. |
| Exactly 2 cuts | 24% | 21.7% | A hawkish outlook based on current economic data reduces the probability of exactly two rate cuts. |
| Exactly 1 cut | 15% | 18% | Recent economic data and central bank guidance suggest a slightly higher likelihood of only one cut. |
| Exactly 6 cuts | 7% | 4.8% | A hawkish recalibration of policy outlooks makes six rate cuts less probable. |
| Exactly 3 cuts | 22% | 17% | Updated macroeconomic intelligence suggests less easing, making exactly three cuts less probable. |
Current Context
Major central banks are generally holding interest rates steady early in 2026, with varied future cut expectations. The US Federal Reserve paused its rate-cutting trend by holding its benchmark interest rate steady in January 2026, with market participants assigning low odds to a Fed rate cut in March 2026. Similarly, the Bank of England (BoE) is widely expected to hold interest rates at 3.75% at its February 5, 2026 meeting, influenced by higher-than-expected inflation, which rose to 3.4% in December. Futures markets, however, suggest the first BoE rate cut of the year is anticipated in April, following four cuts in 2025. The European Central Bank (ECB) is also projected to keep rates unchanged at its February 5, 2026 meeting, marking the fifth consecutive hold since June 2025, despite Euro area inflation easing to 1.7% in January and core inflation slipping to 2.2%. In contrast, the Reserve Bank of Australia (RBA) lifted its cash rate to 3.85% in February 2026, with a further increase expected in May, due to renewed inflation pressures.
Key economic data and expert forecasts drive rate cut expectations for the remainder of 2026. Central bank decisions are heavily influenced by inflation metrics, such as US year-over-year CPI at 2.7% in December 2025, closer to the Fed's 2% target, and Eurozone headline inflation at 1.7% in January 2026. Labor market indicators like unemployment rates (US at 4.4%, expected to increase to 4.5% by end-2026), job growth, and wage growth are also crucial. Economic growth forecasts, including expectations for "above-trend" US economic growth in 2026, and market expectations derived from futures markets, further shape outlooks. Expert opinions on 2026 rate cuts vary, with Bankrate projecting three more cuts totaling 0.75 percentage points for the US Fed, while Goldman Sachs expects two 25 basis point cuts in June and September. For the Bank of England, predictions range from Morgan Stanley's three cuts (March, July, November) to Barclays, NatWest, Nomura, and Pantheon Macroeconomics forecasting just one cut. For the ECB, 85% of economists in a Morningstar poll expect a hold in February, with many anticipating rates will remain at current levels for all of 2026. Upcoming central bank meetings for the BoE, ECB, and US Federal Reserve are scheduled throughout 2026, starting with February 5 for the BoE and ECB.
Balancing inflation and growth, alongside external factors, remains a core challenge for central banks in 2026. A primary concern is the delicate balance between taming inflation and supporting economic growth without causing a recession. The resilience of the job market, including wage growth and potential for slowing employment, is a key discussion point. The influence of government policies, such as the US "One Big Beautiful Bill Act of 2025" and potential tax cuts, on inflation and economic growth is actively debated. Central bank independence and leadership changes, particularly the expiration of Federal Reserve Chair Jerome Powell's term in May 2026, are significant factors impacting future monetary policy. Global divergence in economic conditions and inflation outlooks across major economies, such as the US, Eurozone, UK, and Australia, is leading to varied monetary policy paths and contributing to global economic uncertainty. Additionally, ongoing geopolitical instability and its potential to disrupt supply chains, commodity prices, and financial markets remain concerns for the economic outlook.
2. Market Behavior & Price Dynamics
Historical Price (Probability)
Outcome probability
Date
Based on the provided chart data, this market has been predominantly range-bound with a slight upward drift over its history. The price began at a 5.0% probability, has traded within a channel of $0.04 and $0.30, and is currently settled at $0.10. The $0.04-$0.05 level has acted as a consistent floor or support, while the $0.30 mark represents significant historical resistance, indicating the market's peak optimism for this outcome. The total volume of over 210,000 contracts traded suggests moderate liquidity and sustained interest, although the lack of sharp, high-volume price moves indicates that changes in sentiment have been gradual rather than event-driven.
The market's persistent low probability aligns with the current economic context. Given that the contract likely resolves on a high number of rate cuts in 2026, the cautious stance from major central banks provides a strong fundamental reason for the low price. The US Federal Reserve's decision to pause its cutting cycle in January 2026, coupled with the Bank of England holding rates amid inflationary pressures, dampens expectations for an aggressive, year-long easing cycle. The price's current position at $0.10, well below its $0.30 peak, reflects this recent pivot by central banks toward a more data-dependent and slower approach to monetary easing. The market sentiment is that a high number of rate cuts is a low-probability scenario, but the price remains above its all-time lows, suggesting traders are not entirely ruling out a future shift toward more dovish policy later in the year.
3. Market Data
Contract Snapshot
Based on the provided page content, there are no specific contract rules detailed. The content only states the market title: "Number of rate cuts in 2026? Odds & Predictions." The information regarding what triggers a YES or NO resolution, key dates/deadlines, or any special settlement conditions is not present in the provided text.
Available Contracts
Market options and current pricing
| Outcome bucket | Yes (price) | No (price) | Implied probability |
|---|---|---|---|
| Exactly 2 cuts | $0.24 | $0.77 | 24% |
| Exactly 3 cuts | $0.22 | $0.79 | 22% |
| Exactly 4 cuts | $0.16 | $0.86 | 16% |
| Exactly 1 cut | $0.15 | $0.86 | 15% |
| Exactly 0 cuts | $0.09 | $0.92 | 9% |
| Exactly 5 cuts | $0.08 | $0.98 | 8% |
| Exactly 6 cuts | $0.07 | $0.94 | 7% |
| Exactly 7 cuts | $0.03 | $0.98 | 3% |
| Exactly 8 cuts | $0.02 | $1.00 | 2% |
| Exactly 10 cuts | $0.01 | $1.00 | 1% |
| Exactly 11 cuts | $0.01 | $1.00 | 1% |
| Exactly 12 cuts | $0.01 | $1.00 | 1% |
| Exactly 13 cuts | $0.01 | $1.00 | 1% |
| Exactly 14 cuts | $0.01 | $1.00 | 1% |
| Exactly 15 cuts | $0.01 | $1.00 | 1% |
| Exactly 16 cuts | $0.01 | $1.00 | 1% |
| Exactly 17 cuts | $0.01 | $1.00 | 1% |
| Exactly 18 cuts | $0.01 | $1.00 | 1% |
| Exactly 19 cuts | $0.01 | $1.00 | 1% |
| Exactly 20 cuts | $0.01 | $1.00 | 1% |
| Exactly 9 cuts | $0.01 | $1.00 | 1% |
Market Discussion
Debates surrounding the number of rate cuts in 2026 largely center on whether the Federal Reserve will implement one, two, or more reductions . Many economists and market analysts project two rate cuts, as suggested by futures market activity and some expert opinions, following three cuts in 2025 . However, a significant viewpoint argues for only one or even no cuts, citing persistent inflation, a stabilizing job market, and robust economic activity, with the Fed maintaining a "wait-and-see" approach after holding rates steady in January 2026 . A smaller number of forecasters anticipate more aggressive easing with three or four cuts, while discussions also acknowledge the potential influence of political factors and the critical role of incoming economic data on future policy decisions .
4. How Will Core Services Ex-Housing PCE Impact 2026 Rate Cuts?
| Q2 2026 Core Services Ex-Housing PCE | 1.9% to 2.3% (3-Month Annualized Rate) |
|---|---|
| Q3 2026 Core Services Ex-Housing PCE | 1.8% to 2.4% (3-Month Annualized Rate) |
| Projected 2026 FOMC Rate Cuts | Three to four 25-basis-point cuts (75-100 bps), |
Core services ex-housing PCE inflation is projected to moderate by 2026. The 3-month annualized rate for 'core services ex-housing' Personal Consumption Expenditures (PCE) inflation is projected to be between 1.9% to 2.3% for Q2 2026, and 1.8% to 2.4% for Q3 2026. This metric is considered a key indicator by the Federal Open Market Committee (FOMC) for signaling underlying, domestically-driven inflation.
FOMC governors link this metric to future policy normalization. Boston Fed President Susan Collins explicitly cited this measure as a determinant for policy shifts, noting its return to pre-pandemic ranges by late 2024 would warrant a gradual move towards a neutral policy stance. Federal Reserve Chair Jerome Powell has reinforced this focus, highlighting "ongoing disinflation in all categories of services" as a welcome development in the Committee's assessment. Should these projections hold, the FOMC is expected to begin normalizing its policy. A consistent stream of data showing core services ex-housing PCE inflation at or near 2% through Q2 2026 would likely lead to the first rate cut at the June or July 2026 FOMC meeting. This scenario implies three to four 25-basis-point rate cuts in 2026, totaling 75 to 100 basis points, as the Fed aims to transition from a restrictive to a neutral policy stance,.
5. How Have FOMC Longer-Run Rate Projections Shifted Since 2025?
The FOMC significantly revised its longer-run neutral rate projection upward. This upward adjustment, observed between December 2025 and June 2026, reflects a fundamental reassessment of the U.S. economy's structural parameters. This reevaluation is primarily driven by persistent core services inflation and a resilient labor market experiencing ongoing wage growth , which challenge previous assumptions about a low-inflation, low-rate environment. Additionally, powerful long-term structural forces contribute to this shift, including substantial capital expenditure for the AI transition and increased global investments in the green transition and supply chain re-shoring . Finally, sustained global fiscal deficits reduce national savings, thus necessitating a higher real interest rate to balance the market for loanable funds .
This hawkish shift has profound implications for monetary policy. With the neutral rate now projected at 3.0%, any policy rate below this level is considered accommodative, thereby significantly elevating the threshold for justifying future rate cuts. Consequently, prediction markets for the 'Number of rate cuts in 2026?' are expected to see a dramatic shift towards fewer cuts. The market will likely reprice the 2026 forward curve, removing anticipated 'normalization cuts' and making any further easing contingent solely on demonstrable economic weakness . This scenario implies an increased probability for '0 cuts' or even a potential rate hike if economic data remains robust.
6. How Do Labor Market Indicators Influence Fed Policy in 2026?
| Sahm Rule Recession Indicator | 0.35 (as of December 2025) |
|---|---|
| Continuing Jobless Claims | 1,827,000 (week ending January 17, 2026) |
| FOMC 2026 Rate Cut Projection | One 25-basis-point cut |
Leading labor market indicators show cooling, but haven't triggered a Fed response. The Sahm Rule Recession Indicator reached 0.35 in December 2025, remaining below the 0.50 recession trigger, but its recent rapid ascent is a significant area of concern. Similarly, continuing jobless claims stood at 1,827,000 for the week ending January 17, 2026. These claims have consistently hovered near their highest levels since 2021, indicating increased friction within the labor market. While these indicators reveal a cooling trend, they have not yet crossed historical thresholds that would necessitate an urgent monetary policy intervention from the Federal Reserve.
The Fed's cautious outlook contrasts with market expectations for cuts. This cooling trend creates a complex landscape for the Federal Open Market Committee (FOMC). The federal funds target range remains at 3.50%-3.75%, and the FOMC's December 2025 "Dot Plot" projects only a single 25-basis-point rate cut for 2026. This projection contrasts with market expectations, which are currently pricing in one to two rate cuts, suggesting a belief that further deterioration in labor market conditions could compel the Fed to accelerate its easing cycle. A Sahm Rule trigger or a sustained rise in continuing claims above 1.9 million would likely prompt a more aggressive dovish pivot from the Fed, shifting its primary focus to its employment mandate.
7. How Will Fiscal Deficits Impact Fed Rate Cuts in 2026?
| FY2026 Federal Deficit | 4.2% of GDP (CBO, February 2026) |
|---|---|
| Fiscal Inflationary Pressure | 0.8% to 1.2% on core PCE (FRB/US model ) |
| Projected Fed Funds Rate | Near 5.4% (through 2026 analysis) |
The Congressional Budget Office projects a significant federal budget deficit for FY2026. The U.S. federal budget deficit is expected to reach 4.2% of Gross Domestic Product (GDP) for Fiscal Year 2026, according to the CBO's February 2026 baseline. This sustained, elevated deficit acts as a substantial positive fiscal impulse, driven by growing mandatory spending such as Social Security and healthcare, elevated defense and non-defense discretionary outlays, and increasing net interest costs due to higher interest rates. This persistent fiscal imbalance injects substantial demand into the economy, thereby contributing to inflationary pressures.
This fiscal stimulus will notably increase core inflation. Such a stimulus is estimated to exert 0.8% to 1.2% of upward pressure on core Personal Consumption Expenditures (PCE) inflation by the first quarter of 2026. This quantitative estimate is derived from large-scale econometric models, particularly the Federal Reserve's FRB/US model, which analyzes how government spending fuels aggregate demand, tightens labor markets, and influences inflation expectations. This upward pressure on inflation complicates the Federal Reserve's efforts to achieve its 2% target, even as some private sector activity shows signs of moderation.
The Federal Reserve must maintain a restrictive monetary policy. Consequently, the Federal Reserve is compelled to adopt a 'higher-for-longer' policy stance, maintaining the federal funds rate near its current restrictive level of 5.4% throughout 2026. This strategy is driven by the necessity to prioritize price stability against persistent fiscally-induced inflation. This policy mix of loose fiscal and tight monetary conditions leads to elevated real interest rates and the crowding out of private sector investment. Therefore, prediction markets may be underestimating the minimal probability of significant rate cuts in 2026, as any easing would risk reigniting inflation.
8. Does FOMC Forward Guidance Indicate a Pre-Planned Easing Cycle?
| Federal Funds Rate Target | 3-1/2 to 3-3/4 percent (January 2026) |
|---|---|
| Median PCE Inflation Projection | 2.4% for 2026 (December 2025 SEP) |
| Median Q4 2026 Unemployment Rate | 4.4% (December 2025 SEP) |
The FOMC prioritizes a reactive, meeting-by-meeting policy approach. The Federal Open Market Committee's forward guidance in early 2026 clearly indicates a reactive stance, departing from a pre-planned easing cycle. The decision to maintain the federal funds rate at 3-1/2 to 3-3/4 percent in January 2026, subsequent to earlier rate reductions, served as a primary indicator of a non-linear policy trajectory. This action, coupled with the committee's consistent emphasis on data-dependency in its communications, underscores that future policy adjustments are conditional on shifts in economic conditions, particularly concerning inflation and employment data.
Complex economic conditions necessitate the committee's cautious, flexible approach. This cautious posture stems from a challenging economic environment. While inflation has decreased from its peak levels, reaching the 2% target remains difficult, with median Personal Consumption Expenditures (PCE) inflation anticipated at 2.4% for 2026. Furthermore, some analysts forecast a near-term re-acceleration of core PCE towards 3.0%, adding to uncertainty. Concurrently, the labor market is showing signs of cooling, as evidenced by a projected median unemployment rate of 4.4% for Q4 2026. These divergent signals compel the FOMC to adopt a flexible strategy to fulfill its dual mandate of price stability and maximum employment.
Future policy actions will remain strictly data-contingent and adaptable. The January hold established a precedent for a "cut-then-pause" pattern, making a pre-planned, gradual adjustment path highly improbable for the first half of 2026. All subsequent policy decisions will be directly influenced by incoming data, potentially resulting in scenarios like "skip-then-skip" if inflation persists, or responsive cuts if the labor market weakens. The FOMC intends to maintain a data-contingent framework, prioritizing adaptability over explicit future commitments, even under optimal disinflationary circumstances.
9. What Could Change the Odds
Key Catalysts
The probability of more rate cuts in 2026 largely hinges on global economic data signaling a need for easing. Bullish catalysts for increased rate cuts include persistent disinflation, particularly if core inflation consistently falls below central bank targets, as would be evident in monthly US CPI and PCE reports. A significant weakening of labor markets, characterized by a notable rise in unemployment rates or substantial job losses reflected in the US Employment Situation reports, would also prompt central banks to act. Deterioration in economic growth, such as a sharper-than-expected slowdown or contraction in Gross Domestic Product (GDP), along with a more dovish shift in central bank leadership – for instance, the appointment of a new Fed Chair around May 2026 – or a resolution of geopolitical tensions, would further support more aggressive rate cuts.
Conversely, a scenario with fewer or no rate cuts would be driven by several bearish catalysts. These include a resurgence or stubborn inflation, especially if it re-accelerates above central bank targets due to factors like higher commodity prices, potentially influenced by OPEC+ meetings. Stronger-than-expected economic growth, sustained by robust consumer spending and business investment, would diminish the urgency for central banks to cut rates. Similarly, tight labor market conditions, marked by very low unemployment and accelerating wage growth, would fuel inflation concerns and make central banks hesitant to ease policy. A hawkish shift in the stance of central bank officials during their regular meetings (e.g., FOMC, ECB, and BoE meetings scheduled throughout 2026), or an escalation of geopolitical conflicts that disrupt supply chains and impact energy prices, would also limit the scope for rate reductions.
Key Dates & Catalysts
- Expiration: January 01, 2027
- Closes: January 01, 2027
10. Decision-Flipping Events
- Trigger: The probability of more rate cuts in 2026 largely hinges on global economic data signaling a need for easing.
- Trigger: Bullish catalysts for increased rate cuts include persistent disinflation, particularly if core inflation consistently falls below central bank targets, as would be evident in monthly US CPI and PCE reports [^] .
- Trigger: A significant weakening of labor markets, characterized by a notable rise in unemployment rates or substantial job losses reflected in the US Employment Situation reports [^] , would also prompt central banks to act.
- Trigger: Deterioration in economic growth, such as a sharper-than-expected slowdown or contraction in Gross Domestic Product (GDP) [^] , along with a more dovish shift in central bank leadership – for instance, the appointment of a new Fed Chair around May 2026 [^] – or a resolution of geopolitical tensions, would further support more aggressive rate cuts.
12. Historical Resolutions
Historical Resolutions: 30 markets in this series
Outcomes: 2 resolved YES, 28 resolved NO
Recent resolutions:
- KXRATECUTCOUNT-25DEC31-T9: NO (Jan 01, 2026)
- KXRATECUTCOUNT-25DEC31-T8: NO (Jan 01, 2026)
- KXRATECUTCOUNT-25DEC31-T7: NO (Jan 01, 2026)
- KXRATECUTCOUNT-25DEC31-T15: NO (Jan 01, 2026)
- KXRATECUTCOUNT-25DEC31-T13: NO (Jan 01, 2026)
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