Fed Hits Pause: Why Future Rate Cuts Just Got Harder

With the Federal Reserve holding interest rates steady, Wall Street’s attention is now turning to the long-term policy path through 2026. Forecasts from five major financial institutions reveal a significant divide on when—or if—the central bank will begin to cut rates.

While most analysts anticipate a cautious approach from the Fed, a clear consensus has yet to emerge. Here’s a breakdown of what JPMorgan Chase, Citigroup, Barclays, Bank of America, and Wells Fargo expect.

The Consensus View: 50 Bps of Cuts in 2026

Four of the five institutions surveyed are projecting a total of 50 basis points (bps) in rate cuts during 2026, though they differ on the precise timing.

• Barclays: Expects two 25 bps cuts, one in June and another in December. The bank believes the Federal Open Market Committee (FOMC) will signal it is in no rush, emphasizing that risks to employment and inflation are now balanced.

• Bank of America: Also forecasts 50 bps in cuts, concentrated in June and July. They note, however, that current market pricing leaves room for the Fed to deliver a relatively dovish surprise.

• Citigroup: Maintains its forecast for 50 bps of easing, with cuts in June and September. Citi argues that if the cuts are for policy normalization rather than a crisis response, policymakers will seek a broader consensus, which requires clearer progress on inflation.

• Wells Fargo: Projects cuts in March and June. The bank suggests that the longer the FOMC waits, the higher the economic bar becomes to justify further monetary easing.

JPMorgan's Contrarian Call: No Cuts on the Horizon

JPMorgan Chase stands apart from the crowd, forecasting no interest rate cuts at all in 2026.

The bank’s analysis suggests that after three previous rate cuts for risk management, many FOMC members now believe a pause is appropriate. According to JPMorgan, Fed Chair Jerome Powell will likely argue that the current policy stance is sufficient to manage risks under the Fed’s dual mandate while also avoiding political controversies.

Powell's Message: A Focus on Patience and Data

Across the different forecasts, a common theme is the expectation that Fed Chair Jerome Powell will reaffirm a patient and data-driven approach.

Powell is anticipated to stress that the current monetary policy is appropriate for assessing the effects of previous hikes. He is also expected to emphasize that the labor market has stabilized and that the committee will wait for more definitive signs of progress on inflation before committing to a change in direction. While he may face questions on other topics, like a Justice Department investigation, his commentary on monetary policy is expected to remain consistent and cautious.

Source: Yahoo Finance

Federal Reserve Governor Christopher Waller broke ranks on Wednesday, dissenting from the central bank's decision to hold interest rates steady. This move immediately positions him closer to President Donald Trump, but it comes at a significant cost to both Waller's reputation and the Fed's institutional credibility.

Waller is a leading contender to become the next Fed chair. Following his dissent, his odds on the betting site Kalshi surged from 8% to 15%. The move is widely seen as a response to Trump's demand for a chair who will prioritize lower interest rates, effectively turning the nomination process into a public loyalty test for an otherwise respected public servant.

This development is particularly notable because Waller was long considered a champion of the Fed's independence. His image as a technocrat who bases decisions strictly on economic data, not political pressure, is now under scrutiny.

The Economic Case for Dissent Weakens

This isn't Waller's first break with the consensus. He, along with serial dissenter Stephen Miran, also pushed for a 25 basis point cut in July when the Fed held rates steady.

At that time, Waller built his case on several key arguments:

• Tariffs: He argued that tariffs were a one-off price increase that monetary policy should ignore.

• Inflation: He believed inflation was near the Fed's target if you adjusted for the duties.

• Jobs: He pointed to private sector job growth being "near stall speed."

• GDP: He noted that real GDP growth was soft in the first half of 2025 and was expected to remain so.

However, the economic landscape has shifted since July. While some of his points on inflation and jobs remain partly true, the argument for an urgent rate cut has been undermined by strong third-quarter GDP data and a stabilizing labor market.

Waller's goal in July was to move interest rates toward a "neutral" level—a rate that neither stimulates nor restrains the economy. Policymakers now estimate this neutral rate is somewhere between 2.6% and 3.9%. After three subsequent rate cuts, the current policy rate is in a range of 3.5%-3.75%, placing it squarely within the plausible neutral zone. This makes the immediate need for further cuts far less clear from a purely economic standpoint.

A Question of Motive and Timing

Waller himself has previously stated that dissents should be used carefully and intentionally. In a July interview on Bloomberg Television, he emphasized their rarity and importance. Yet, he has now dissented in two consecutive meetings where his—and Trump's—preferred policy was not adopted.

While lively debate and dissenting opinions are healthy for the Fed, they are most valuable when rooted in clear economic reasoning. When the economic justification appears weak, such moves can look more like political grandstanding.

The Best Candidate Despite the Politics?

Despite this recent action, Waller remains a strong candidate for the Fed's top job. He is an exceptional communicator with a solid track record of economic analysis since joining the Fed in 2020.

He correctly identified the risk of sustained inflation in 2021 and argued in 2022 that the Fed could combat it with high rates without causing a recession. As an institutionalist respected by his colleagues, he may still be the best choice to defend the Fed's independent tradition, especially as the executive branch has used the Justice Department to attack the central bank.

Even so, this particular dissent feels less like a principled stand and more like a political calculation. It highlights the damage caused by Trump's pressure campaign. Even if the Federal Reserve's independence ultimately survives, the institution is unlikely to emerge from this period unscathed. The unorthodox process of forcing candidates to publicly audition for the top job will leave a lasting mark, even if the right person ultimately wins the role.

Tesla announced it will invest $2 billion in CEO Elon Musk’s artificial intelligence venture, xAI, while confirming that production plans for its Cybercab robotaxi and Semi trucks are on schedule for this year. The news sent Tesla shares up 3.4% in extended trading.

This move signals a significant pivot for the automaker, reinforcing its transformation from a car company into an AI and robotics powerhouse. For investors, much of Tesla's massive $1.5 trillion valuation hinges on the success of this high-stakes bet on autonomous technology.

The AI Strategy Driving Tesla's Valuation

The investment in xAI is designed to directly support Tesla's ambitious goals in autonomous driving and robotics. With the company’s future increasingly tied to these technologies, delivering on long-standing promises is crucial for maintaining investor confidence.

In the past, Tesla has missed several of Musk's ambitious targets, including the widespread rollout of its robotaxi service across the United States. By reiterating its production timelines, the company aims to reassure the market that its vision is moving from concept to reality.

Strong Q4 Results Beat Wall Street Forecasts

While future tech dominates the narrative, Tesla’s current business demonstrated solid performance. The Austin-based company reported strong financial results for the fourth quarter ending December 31, surpassing analysts' expectations.

• Revenue: $24.9 billion, beating the average estimate of $24.79 billion.

• Adjusted Earnings Per Share: 50 cents, topping the Wall Street target of 45 cents.

• Automotive Gross Margin: 17.9% (excluding regulatory credits), significantly higher than the 14.3% expected by analysts.

These figures, compiled from LSEG and Visible Alpha data, show that the core automotive business remains resilient.

Navigating Headwinds in the EV Market

Despite the strong quarter, Tesla's vehicle division faces considerable strain. The company is grappling with increased competition from rivals launching newer and often cheaper models, the expiration of a U.S. electric vehicle tax incentive, and the impact of Musk’s political rhetoric on some customers.

To counter these pressures, Tesla has relied on lower-priced "Standard" versions of its popular Model 3 and Model Y vehicles. This strategy helps attract price-sensitive buyers and is expected to be a key driver for delivery growth in 2026, with Wall Street forecasting 1.77 million vehicle deliveries—an 8.2% increase. Some analysts see this as a deliberate trade-off: sacrifice short-term margins to expand the vehicle fleet that could later generate high-margin software revenue.

Robotaxis: The Long Road from Promise to Product

Investors are now intensely focused on tangible proof that Tesla's autonomy story is progressing. This includes updates on regulatory approvals for Full Self-Driving (FSD) technology and clearer timelines for the purpose-built Cybercab, a vehicle designed without a steering wheel or pedals.

Musk has a nearly decade-long history of outlining a vision for rapid FSD progress and setting ambitious deadlines for robotaxis that were later missed. An earlier goal to have them serving half the U.S. population by the end of 2025 was eventually scaled back to just 8-10 metropolitan areas, a target the company has yet to meet.

Last year, Musk stated that production of the Cybercab would begin in April 2026. More recently, however, he cautioned that initial production of the robotaxi and the Optimus humanoid robot would be "agonizingly slow" before ramping up, leaving investors awaiting a more concrete forecast.

Energy Division Shines as a Key Growth Area

Beyond cars and AI, Tesla’s energy generation and storage business has become a notable bright spot. In the fourth quarter, energy storage deployments surged by approximately 29% to a record 14.2 gigawatt-hours. This growth was fueled by sustained demand for grid-scale batteries, which are essential for supporting renewable power sources and stabilizing electricity networks.

Looking ahead, Tesla's stock performance, which saw an 11% rise in 2025, will likely depend on its ability to execute its AI-driven roadmap. An $878 billion pay package for Musk, tied to aggressive operational and valuation milestones, has helped reassure investors of his continued commitment to the company amidst his other ventures.

The United States has released two Russian sailors who were detained by the U.S. Navy earlier this month as part of an enforcement action related to sanctions on Venezuela. Russian Foreign Ministry spokeswoman Maria Zakharova confirmed on Wednesday that the two men are now on their way back to Russia.

"We welcome this decision and express our gratitude to the US leadership," Zakharova stated.

The Seizure of the Marinera Tanker

The sailors were part of the crew on the Marinera, a Russian-flagged oil tanker previously known as the Bella 1. U.S. authorities intercepted and seized the vessel on January 7 in the North Atlantic after tracking it from the Caribbean. American officials alleged that the tanker, which was chartered by a private company, was attempting to circumvent Washington's oil embargo against Venezuela.

The Russian-flagged oil tanker Marinera was seized by U.S. authorities for allegedly violating the oil embargo on Venezuela.

The Marinera had a multinational crew of 28 people, highlighting how U.S. sanctions enforcement can affect foreign nationals. The crew included:

• 17 Ukrainians

• 6 Georgians

• 3 Indians

• 2 Russians

While the Russian nationals have been freed, the status of the other crew members remains unknown. Their respective embassies are likely negotiating for their release.

Averting a Diplomatic Crisis

The situation had the potential to escalate significantly. U.S. officials initially threatened to prosecute the Marinera's crew, a move Russia deemed "categorically unacceptable."

Moscow warned that such an action would "only result in further military and political tensions" and expressed concern over "Washington's willingness to generate acute international crisis situations." The presence of a Russian submarine near U.S. maritime forces at the time added to the volatile circumstances.

To de-escalate, the Kremlin disclosed that it had appealed directly to the Trump administration for the swift release of its citizens. The release of the sailors has prevented what could have become a serious international incident.

Shifting US Policy on Venezuela

This event unfolds as the United States appears to be slowly adjusting its approach to Venezuela. The U.S. is reportedly making preliminary moves to reopen its embassy in Caracas and is engaged in ongoing talks with interim leader Delcy Rodríguez.

More significantly, Reuters reported on Tuesday that the U.S. is preparing to issue a general license that would enable a broad rollback of sanctions. This would mark a departure from the current system of granting piecemeal waivers.

Brazil's central bank held its key interest rate steady at a nearly two-decade high of 15% during its first policy meeting of 2026, but it explicitly promised to begin cutting rates at its next meeting in March.

The decision to maintain the benchmark Selic rate for a fifth consecutive meeting was widely anticipated. It was led by policymaker Gabriel Galipolo and matched the expectations of 32 out of 35 economists surveyed by Bloomberg.

In its official statement, the central bank said it "foresees... to initiate the flexibilization of its monetary policy stance at the next meeting." However, officials stressed that they will "keep monetary policy at a contractionary level to ensure convergence to the inflation target."

Inflation Remains the Top Concern

While inflation in Latin America’s largest economy has recently fallen into the central bank's tolerance band, it continues to run above the official 3% target.

Several factors are fueling price pressures:

• Strong Services Sector: A tight labor market with low unemployment is boosting consumer spending.

• High Public Spending: Government stimulus is adding to demand in the economy.

• Robust Economic Activity: The central bank's latest activity gauge surpassed all analyst forecasts, indicating underlying economic strength.

"Nothing particularly relevant emerged between meetings that the central bank could use to justify changing the Selic rate," explained Caio Megale, chief economist at XP Inc., ahead of the announcement.

Official data showed annual inflation at 4.5% in the first half of January. Analysts polled by the central bank expect consumer price increases to remain above 3.5% through 2029.

External Factors and Currency Strength

The decision in Brazil came just hours after the U.S. Federal Reserve also held its interest rates, signaling a more cautious approach to future policy adjustments amid signs of improvement in the American economy.

Helping the central bank in its fight against inflation is the Brazilian real. The currency has gained over 6% in the last 30 days, a rally that helps lower the cost of imported goods.

Fiscal Worries Mount Over Lula's Spending Plans

Despite the planned policy shift, investors remain wary of President Luiz Inacio Lula da Silva's fiscal policies. Concerns are growing that the government will increase public spending, particularly as the president's reelection campaign intensifies this year.

Recent government measures have amplified these concerns, including a 6.8% increase in the minimum wage, which automatically raises spending on pensions and social benefits. Additionally, a tax reform has been enacted that expands the number of workers exempt from paying income tax.