Key takeaways
- With the unemployment rate stabilizing, J.P. Morgan Global Research no longer sees the Federal Reserve (Fed) cutting rates at its January meeting.
- Looking ahead, the Fed is expected to remain on hold through 2026, keeping the funds rate steady at 3.5–3.75%.
- Thereafter, it is projected to hike rates by 25 basis points (bp) in the third quarter of 2027, bringing the upper band for the policy rate back up to 4%.
As widely expected, the Federal Reserve (Fed) delivered a cut of 25 basis points (bp) at its last meeting in December, bringing the federal funds rate to 3.5–3.75%. In light of the latest labor market data, are there further rate cuts on the horizon?
Is the Fed expected to cut interest rates in January?
The December jobs report alleviated concerns about a slackening labor market, with the unemployment rate ticking down to 4.4%. As a result, J.P. Morgan Global Research no longer expects the Fed to ease at the end of the month.
“Over the second half of 2025, the economy seems to have settled into an equilibrium of slower labor supply growth met by slower labor demand growth, though with few signs of further deterioration,” said Michael Feroli, chief U.S. economist at J.P. Morgan. “The recent stabilization in the unemployment rate should finally bring some cohesion to the FOMC, and we now look for the Committee to be on hold at the January meeting.”
“The recent stabilization in the unemployment rate should finally bring some cohesion to the FOMC, and we now look for the Committee to be on hold at the January meeting.”
Michael Feroli
Chief U.S. economist, J.P. Morgan
What’s the outlook for interest rates for 2026 and beyond?
Looking ahead, J.P. Morgan Global Research expects the Fed to remain on hold through 2026, keeping the funds rate steady at 3.5–3.75%. Thereafter, it is projected to hike by 25 bp in the third quarter of 2027, bringing the upper band for the policy rate back up to 4%.
“The proposition that rates are restrictive looks increasingly untenable given economic and financial developments,” Feroli said. “If the labor market weakens again in the coming months, or if inflation falls materially, the Fed could still ease later this year. However, we expect the labor market to tighten by the second quarter and the disinflation process to be quite gradual.”
How might monetary policy be impacted by Fed independence?
That said, the interest rate outlook could also hinge on the Fed’s ability to maintain its independence in the face of growing political pressure. The Department of Justice has launched a criminal investigation into current Fed chair Jerome Powell, whose leadership term ends in May — though he could continue to serve as governor until early 2028.
The Trump administration is expected to announce a new Fed chair in the coming weeks, with one of the frontrunners, Kevin Hassett — the Director of the National Economic Council — widely expected to advocate for lower rates. “However, as a Fed chair cannot dictate policy decisions, Hassett would have to build consensus on the FOMC for his views,” Feroli noted.
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