Fed's Future Path: Rate Hike Forecasts and Market Reactions

Major financial institutions predict changes in U.S. Federal Reserve interest rates. J.P. Morgan forecasts a rate hike in 2027, with other banks postponing rate cuts to 2026. Despite slowed employment growth, solid wages indicate stability. The Fed likely maintains current rates, while labor market dynamics influence future decisions.

J.P. Morgan and other major financial institutions have adjusted their predictions for the U.S. Federal Reserve's interest rate changes. J.P. Morgan now forecasts a rate hike in 2027, while Barclays, Goldman Sachs, and Morgan Stanley have postponed their rate cut predictions to mid-2026. Despite a slowdown in employment growth, robust wage figures and a decline in the unemployment rate to 4.4% suggest the labor market remains relatively stable. This has led to increased expectations that the Federal Reserve will leave borrowing costs unchanged at its upcoming January meeting.

According to traders, there is a 95% likelihood that the Federal Reserve will maintain current rates in January, up from 86% before recent employment data was released. Goldman Sachs and Barclays have modified their forecasts, predicting 25 basis point rate reductions in September and December, respectively, assuming continued labor market stabilization. Goldman Sachs also lowered its 12-month U.S. recession probability from 30% to 20%.

Amid these financial predictions, tensions are rising between President Donald Trump and Fed Chair Jerome Powell. Powell has accused the Trump administration of threatening him with a criminal indictment, which he describes as a move to influence interest rates in a direction favorable to the administration. This conflict underscores concerns about the Federal Reserve's independence.