Will the Fed do a rate cut greater than 25bps this year?
Yes refers to: In 2026
Short Answer
Both the model and the market expect that the Fed will do a rate cut greater than 25bps in 2026, with no compelling evidence of mispricing.
1. Executive Verdict
- Severe economic deterioration may compel FOMC to implement large rate cuts.
- Major financial institutions offer varied forecasts for the Fed's rate path.
- New Fed Chair Kevin Warsh's policy philosophy is a relevant factor.
- Remaining 2026 economic reports will directly influence final FOMC meetings.
- Middle East conflict caused historic global oil supply disruption since March 2026.
- Market sentiment has shifted strongly towards no Fed rate cuts in 2026.
Who Wins and Why
| Outcome | Market | Model | Why |
|---|---|---|---|
| In 2026 | 9.0% | 5.8% | Expectations for a large Fed rate cut are primarily focused on 2026. |
Current Context
The Federal Reserve is broadly anticipated to maintain current interest rates throughout 2026. As of May 27, 2026, the central bank is widely expected to hold interest rates at their present range of 3.50%-3.75% for the foreseeable future, with a rate cut this year viewed as unlikely by most experts and markets [^][^][^]. Major financial institutions, including Goldman Sachs, have postponed their forecasts for potential cuts to late 2026 or even into 2027, citing persistent inflation risks, partly exacerbated by the Middle East conflict [^][^][^].
Prediction markets indicate a strong likelihood of no rate cuts occurring in 2026. Platforms such as Polymarket and CME FedWatch show a high probability, frequently exceeding 65-75%, that the Federal Reserve will not implement any interest rate adjustments this year [^][^][^][^]. This widespread market sentiment makes a rate cut greater than 25 basis points in 2026 extremely improbable [^][^].
Chair Warsh's Fed policy faces inflationary pressures, suggesting a 'higher-for-longer' environment. The newly appointed Federal Reserve Chair, Kevin Warsh, leads an institution whose initial policy trajectory is subject to intense speculation; while some analysts believe he may eventually advocate for easing, current economic conditions—particularly energy-related inflationary pressures—have shifted focus toward a sustained 'higher-for-longer' interest rate environment [^][^][^][^][^]. Key remaining FOMC meeting dates in 2026, including June 16–17, July 28–29, September 15–16, November 3–4, and December 15–16, will be critical junctures for potential policy pivots based on incoming data regarding inflation and labor market stability [^][^].
2. Market Behavior & Price Dynamics
Historical Price (Probability)
Outcome probability
Date
This prediction market has exhibited a sideways trend, trading within a relatively narrow channel between 7.7% and 14.5%. The price started at 9.1% and is currently at 9.0%, indicating that market sentiment has remained stable and consistently low throughout the trading period. The range boundaries of 7.7% and 14.5% have acted as effective support and resistance levels, respectively, containing all price action. A notable movement was the spike to 12.9% around May 19th, which represented the peak of optimism for a large rate cut. However, this increase was short-lived, and the price subsequently fell back to its baseline.
The reversion of the price to 9.0% by May 27th aligns with the provided context, where major financial institutions and experts are reported to view a rate cut this year as unlikely due to persistent inflation risks. This expert consensus appears to be the dominant factor anchoring the market's low probability assessment. The total traded volume of 24,633 contracts suggests moderate interest in the market, but the sample data points show zero volume, which could indicate that some price swings occurred on thin liquidity rather than a broad shift in conviction.
Overall, the chart suggests a strong and persistent market consensus that a Federal Reserve rate cut greater than 25 basis points will not happen this year. The price has consistently remained below 15%, reflecting the prevailing economic analysis that the Fed is expected to hold rates steady. The failure of the mid-month price spike to sustain itself further reinforces the market's conviction in this low-probability outcome, treating any contrary movements as temporary deviations from the established sentiment.
3. Market Data
Contract Snapshot
This market resolves to YES if the Federal Reserve implements a single interest rate cut greater than 25 basis points (e.g., 50bps or more) before December 31, 2026, including during non-scheduled meetings. Cumulative cuts that add up to more than 25 basis points are not sufficient; it must be a single rate reduction event. If no such cut occurs by the December 31, 2026 deadline, the market resolves to NO, with outcomes verified by the Federal Reserve.
Available Contracts
Market options and current pricing
| Outcome bucket | Yes (price) | No (price) | Last trade probability |
|---|---|---|---|
| In 2026 | $0.11 | $0.92 | 9% |
Market Discussion
Traders are primarily discussing a widespread misunderstanding of the market rules, noting that many initially believed "a rate cut greater than 25bps" referred to cumulative cuts throughout the year, rather than a single rate cut exceeding 25 basis points. The only explicit argument for a "Yes" outcome suggests potential political pressure from a new administration could lead to such a large, single cut.
There are no direct arguments for "No" in the discussion. However, the comments indicate significant confusion among participants about the specific definition, with some feeling misled after taking positions. The market's current low probability (0.7%) for a "Yes" outcome suggests a strong consensus that a single rate cut greater than 25 basis points is unlikely to occur this year.
4. What level of economic deterioration in the second half of 2026 would compel the FOMC to implement a rate cut greater than 25bps?
| Potential future rate cut | 200-300 basis points [^] |
|---|---|
| Great Recession largest cut | 100 bps (December 2008) [^][^][^] |
| COVID-19 unscheduled cuts | 150 bps (March 2020) [^][^] |
Severe economic deterioration would compel the FOMC to implement large rate cuts. The Federal Open Market Committee (FOMC) would consider implementing a rate cut greater than 25 basis points in the second half of 2026 if the U.S. economy slows sharply, potentially leading to cuts ranging from 200 to 300 basis points [^]. Such aggressive monetary easing has historically coincided with severe economic deterioration and recessions [^][^][^][^]. For instance, during the Great Recession, when GDP fell by over 4%, the FOMC lowered the federal funds rate through cuts including a 100 basis point reduction in December 2008 and a 50 basis point cut in October 2008 [^][^][^]. Similarly, in response to the COVID-19 pandemic, the Fed implemented two unscheduled rate cuts in March 2020, totaling 150 basis points [^][^].
Key triggers for aggressive rate cuts involve labor and financial markets. Primary drivers for these drastic measures include a severe labor market deterioration, marked by a rapid and substantial increase in the unemployment rate and jobless claims [^][^][^][^]. This aligns with the Fed's dual mandate for maximum employment [^][^]. Additionally, widespread financial market instability, such as a "dash for cash" scenario or severe market liquidity deterioration threatening the flow of credit, could prompt such actions [^][^][^][^][^]. Rapid disinflationary or deflationary pressures, where inflation falls significantly below target, would also be a compelling factor [^][^][^][^][^]. An example of combined triggers was a 50 basis point cut in September 2024, made in response to declining inflation alongside weaker employment data [^][^].
5. What is the consensus forecast from major financial institutions like Goldman Sachs and J.P. Morgan for the Fed's rate path through the end of 2026?
| J.P. Morgan 2026 Rate Expectation | Hold rates steady [^][^] |
|---|---|
| Late 2026 Fed Funds Rate | Near 3.8% [^][^][^] |
| 2026 Zero Rate Cut Probability | Approximately 70% [^] |
Major financial institutions offer varied forecasts for the Fed's rate path. The consensus from major financial institutions presents a mixed, yet generally cautious, outlook for the Federal Reserve's rate path through the end of 2026, strongly leaning towards either maintaining current rates or implementing delayed, smaller cuts. J.P. Morgan Global Research anticipates that the Fed will keep rates steady for the remainder of 2026, with the next projected move being a 25 basis point hike in the third quarter of 2027 [^][^]. In contrast, Goldman Sachs maintains that there remains potential for the Fed to cut rates later in 2026, with some projections indicating as many as two 25-basis-point reductions, though the timing is highly uncertain and dependent on inflation and labor market trends [^][^]. Other prominent financial analysts have similarly adjusted their expectations, deferring final Fed rate cuts to late 2026 or early 2027, while also acknowledging a reasonable likelihood of the Fed remaining on hold indefinitely [^].
Broader financial markets largely anticipate the Fed will hold rates. Broad financial market sentiment, as evidenced by tools such as CME FedWatch and futures, predominantly suggests the Federal Reserve will remain on hold through the end of 2026 [^][^][^]. Futures markets are pricing in a Fed funds rate level near 3.8% by late 2026 [^][^][^]. Additionally, prediction markets like Polymarket show a high probability, approximately 70%, assigned to the outcome of zero rate cuts in 2026 [^]. This implies that market participants consider a rate cut greater than 25 basis points this year to be highly unlikely [^].
6. How does new Fed Chair Kevin Warsh's stated monetary policy philosophy compare to that of his predecessors regarding aggressive rate cuts versus inflation control?
| Fed Chair Sworn In | May 22, 2026 [^][^][^][^] |
|---|---|
| Past Monetary Stance | Hawkish on inflation, notably during 2008 financial crisis [^] |
| Current Policy Advocacy | Lower interest rates, citing AI-driven productivity gains [^][^][^][^] |
Kevin Warsh assumed the Federal Reserve chairmanship amidst evolving policy views. He was sworn in as the 11th Chair of the Federal Reserve on May 22, 2026 [^][^][^][^]. Historically, Warsh has been described as hawkish on inflation, a stance particularly evident during the 2008 financial crisis [^]. More recently, however, he has advocated for lower interest rates, basing this shift on the premise that AI-driven productivity gains could effectively mitigate inflationary pressures [^][^][^][^].
Observers characterize Warsh as conditionally flexible rather than strictly ideological. Critics view him as 'conditional' or politically adaptable, rather than purely hawkish or dovish, noting a tendency to support lower rates during Republican administrations [^][^][^]. As of late May 2026, Warsh faces the immediate challenge of surging inflation while navigating political pressure from President Trump to implement rate cuts [^][^][^]. Analysts anticipate that he will struggle to justify aggressive cuts as long as inflation remains above the target level [^][^][^].
7. What are the key dates for the remaining 2026 CPI, PCE, and Jobs Report releases that will directly influence the final three FOMC meetings?
| August 2026 CPI Release Date | September 11, 2026 [^] |
|---|---|
| September 2026 Jobs Report Release Date | October 2, 2026 [^] |
| November 2026 PCE Release Date | November 25, 2026 [^] |
Key economic reports will influence the final 2026 FOMC meetings. The final three Federal Open Market Committee (FOMC) meetings in 2026 are scheduled for September 15-16, October 27-28, and December 8-9 [^][^][^][^][^]. These meetings will be directly influenced by forthcoming releases of the Consumer Price Index (CPI), Personal Consumption Expenditures (PCE), and Jobs Report data. Ahead of the September meeting, August data for the Employment Situation Report, CPI, and PCE are critical [^][^][^].
September and October FOMC meetings hinge on specific economic data. For the September 15-16, 2026 FOMC meeting, the August 2026 Employment Situation Report is due September 4, 2026 [^], the August 2026 CPI on September 11, 2026 [^], and the August 2026 PCE data on August 26, 2026 [^]. The subsequent October 27-28, 2026 FOMC meeting will consider the September 2026 Employment Situation Report, set for October 2, 2026 [^], the September 2026 CPI on October 14, 2026 [^], and the September 2026 PCE data, which will be released on September 30, 2026 [^][^].
December's FOMC meeting will analyze November's crucial economic indicators. Leading up to the December 8-9, 2026 FOMC meeting, the November 2026 Employment Situation Report is scheduled for December 4, 2026 [^]. Additionally, the October 2026 CPI data is expected on November 10, 2026 [^], and the November 2026 PCE data is slated for release on November 25, 2026 [^].
8. What specific developments in the Middle East conflict could significantly alter energy prices and the Federal Reserve's inflation forecast before year-end 2026?
| Brent Crude Price | above $108 per barrel [^][^][^] |
|---|---|
| PCE Inflation Forecast | 2.7% as of May 2026 [^][^][^] |
| Global Oil Output Reduction | 6.6% in Q2 2026 [^][^][^] |
Strait of Hormuz closure caused historic global oil supply disruption. The de facto closure of the Strait of Hormuz since March 2026 has caused the largest global oil supply disruption in history, driving Brent crude prices above $108 per barrel and reducing global oil output by approximately 6.6% in Q2 2026 [^][^][^]. This Middle East conflict is anticipated to trigger the biggest energy price surge in four years [^].
Fed revised inflation forecast upwards due to energy shocks. In response to these developments, the Federal Reserve revised its PCE inflation forecast upward to 2.7% as of May 2026. Federal Reserve officials have indicated that persistent energy price shocks pose a risk of de-anchoring long-term inflation expectations [^][^][^].
Fed officials now lean towards rate hikes, not cuts. The conflict has prompted Federal Reserve officials to shift from a base case of interest rate cuts to a stance of extreme caution. Some policymakers have explicitly mentioned the potential for a series of rate hikes if inflation pressures from the conflict continue to intensify [^][^][^]. Prediction markets and analyst forecasts currently assign a very low probability to Fed rate cuts in 2026, with the dominant market expectation being for zero rate cuts, making a rate cut greater than 25bps highly unlikely [^][^].
9. What Could Change the Odds
Key Catalysts
Markets have shifted strongly toward “no rate cuts in 2026,” with Kalshi-style odds reporting 69.8% YES for “no Fed rate cuts happen in 2026” and 32.9% odds for any cut before 2027, which materially lowers the probability of a single-event cut larger than 25 bps in 2026 [^] [^] . Prediction-market probability for “How many Fed rate cuts in 2026?” shows the top outcome as “0 (0 bps)” around ~70%, with the next outcome “1 (25 bps)” around ~17% [^].
Several strategists no longer expect the Federal Reserve to cut rates in 2026. Nomura “no longer expects the Federal Reserve to cut rates in 2026,” after previously forecasting two 25 bp cuts later in the year [^]. Similarly, J.P. Morgan Global Research’s base case is that the Fed will “remain on hold … for the rest of 2026,” with the next move likely being a 25 bp hike in Q3 2027; this implies near-zero odds for a >25 bps cut in 2026 [^].
Key Dates & Catalysts
- Expiration: January 01, 2027
- Closes: January 01, 2027
10. Decision-Flipping Events
- Trigger: Markets have shifted strongly toward “no rate cuts in 2026,” with Kalshi-style odds reporting 69.8% YES for “no Fed rate cuts happen in 2026” and 32.9% odds for any cut before 2027, which materially lowers the probability of a single-event cut larger than 25 bps in 2026 [^] [^] .
- Trigger: Prediction-market probability for “How many Fed rate cuts in 2026?” shows the top outcome as “0 (0 bps)” around ~70%, with the next outcome “1 (25 bps)” around ~17% [^] .
- Trigger: Several strategists no longer expect the Federal Reserve to cut rates in 2026.
- Trigger: Nomura “no longer expects the Federal Reserve to cut rates in 2026,” after previously forecasting two 25 bp cuts later in the year [^] .
12. Historical Resolutions
No historical resolution data available for this series.
