JP Morgan’s top economist believes the Federal Reserve is done cutting rates and will keep policy steady through 2026, with the next step likely to be a rate hike in 2027.
“We now expect the Fed to maintain interest rates throughout 2026, with the next step to increase later in 2027,” wrote Michael Ferolithe bank’s chief U.S. economist, in a client note.
The forecast comes after a series of rate cuts by the Fed in the fall and winter of 2025, which helped push mortgage rates to their lowest levels in more than a year.
While there are growing signs that Fed policymakers will keep rates steady at its next meeting later this month, financial markets are predicting two more rate cuts in 2026.
However, Feroli believes the US economy will experience accelerating job growth this year and core inflation will remain above 3%, making it difficult for the Fed to cut rates.
Although Fed Chairman Jerome Powell‘s term ends in May, and president Donald Trump He is expected to appoint a replacement who favors lower rates. The chairman has only one vote on the 12-member Federal Open Market Committee (FOMC), which sets interest rate policy.
“Against this expected macroeconomic backdrop, we do not see the new dovish Fed chairman being able to push the FOMC to make cuts,” Feroli wrote.
Still, the economist noted that his forecast was not a certainty and that changing economic conditions could prompt the Fed to take action.
“If the labor market weakens again in the coming months, or if inflation falls substantially, the Fed could still ease later this year,” he wrote. “However, we expect the labor market to tighten in the second quarter and the disinflation process to be quite gradual.”
For mortgage rates, prolonged inflation and tighter Fed monetary policy would create upward pressure, likely keeping rates above 6% in the coming year.
Mortgage rates averaged 6.16% last week, remaining near 2025 lows, according to Freddie Mac. Realtor.com® The economic research team predicts that mortgage interest rates will average around 6.3% in 2026.
JP Morgan’s new forecast follows its latest jobs report, which showed the unemployment rate fell to 4.4% last month, down from a revised 4.5% in November, which marked a four-year high.
Signs of a stabilizing labor market also prompted Goldman Sachs and Barclays to revise their forecasts for Fed rate cuts this year, which the two banks said will come later this year.
Goldman and Barclays think the Fed’s first rate cut won’t happen until June, after previously predicting cuts in March. The two banks still see a total of three quarter-point interest rate cuts through 2026.
“If the labor market stabilizes as we expect, the Federal Open Market Committee will likely shift from risk management to normalization,” Goldman said in a note.
