Rate-Cut Predictions Shift Amid Economic Uncertainty

Wells Fargo Investment Institute no longer anticipates U.S. Federal Reserve interest rate cuts in 2026 due to inflation uncertainty and geopolitical tensions. Initially forecasting two cuts, they now advise patience. Citigroup also delayed its rate-cut timeline, pointing to ongoing inflation risks and strong job growth.

Wells Fargo Investment Institute announced on Monday that it no longer expects the U.S. Federal Reserve to reduce interest rates in 2026. The change in forecast stems from uncertainties surrounding inflation and rising geopolitical risks linked to conflict in the Middle East. Previously, the institute predicted two rate cuts from the Federal Reserve within the year.

In an analysis by Wells Fargo strategists, a temporary surge in inflation and heightened uncertainty have shifted the risk balance, encouraging the Federal Reserve to adopt a more cautious approach. Meanwhile, Citigroup has also revised its timeline for anticipating federal rate cuts due to persistent inflation concerns and unexpectedly strong U.S. job growth.

The Wall Street firm now anticipates a total of 75 basis points rate cuts occurring in September, October, and December, rather than in June, July, and September, as per a report dated April 3. Despite anticipating a softening labor market leading to rate reductions later in the year, Citigroup adjusted its forecast based on the timing of upcoming economic data.

(With inputs from agencies.)