JPMorgan Scraps Rate Cut Forecast, Now Sees Hike in 2027

Liam Peterson

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Central Bank

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Traders' Opinions

Economic

Summary:

JPMorgan reverses its Fed rate cut forecasts, now anticipating a 2027 hike as strong jobs data shifts Wall Street expectations.

In a major policy reversal, JPMorgan Chase has abandoned its forecast for a Federal Reserve rate cut in 2026. The investment bank now predicts the Fed’s next move will be a 25 basis point rate hike in the third quarter of 2027, completely shelving its previous call for a cut in January 2026.

This pivot follows Friday's U.S. jobs report, which showed a labor market that isn't cooling fast enough to warrant monetary easing. While employment growth slowed more than anticipated, the unemployment rate fell to 4.4%, and wage growth remained solid.

However, JPMorgan noted that the door isn't completely closed on easing. "If the labor market weakens again in the coming months, or if inflation falls materially, the Fed could still ease later this year," the bank stated.

Wall Street Pushes Back Rate Cut Timelines

JPMorgan is not alone in reassessing the Fed's path forward. Other major banks are also delaying their expectations for rate cuts.

• Goldman Sachs: Has moved its rate cut forecast from March and June to June and September. The firm also lowered its 12-month probability of a U.S. recession from 30% to 20%, stating that the Federal Open Market Committee (FOMC) will likely shift from "risk management mode to normalization mode" if the labor market stabilizes.

• Barclays & Morgan Stanley: Both banks have adjusted their rate cut expectations to mid-2026. Morgan Stanley had previously anticipated cuts in January and April.

Traders Price In a Prolonged Rate Hold

Market sentiment has shifted decisively in response to the economic data. According to the CME FedWatch tool, traders now see a 95% probability that the Federal Reserve will hold interest rates steady at its January meeting. This is a significant jump from the 86% chance priced in before the jobs report was released.

Political Pressure and Upcoming Inflation Data

Adding another layer of complexity is the political environment surrounding the central bank. Fed Chair Jerome Powell revealed on Sunday that the Trump administration had threatened him with a criminal indictment, raising questions about the Fed's future independence.

With rate cut expectations fading, all eyes are now on Tuesday's Consumer Price Index (CPI) data, which will be the next major test for markets. Ahead of the report, Bitcoin is trading at $90,561, having lost its earlier gains and is down 2.48% over the past week.

To stay updated on all economic events of today, please check out our Economic calendar

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