The Federal Reserve appears in no hurry to lower interest rates further. According to Jefferies, the easing of policy could be put on hold in 2026, as fiscal stimulus and Donald Trump's proposed investment program—the so-called "One Big Beautiful Bill"—are expected to stimulate economic growth and reduce the demand for additional support.
“The economy will benefit from reduced uncertainty on trade policy, reduced uncertainty on fiscal policy, incentives for investment in the One Big Beautiful Bill, and some marginal benefit from rate cuts. Thus, we do not see much need for additional cuts in 2026 as things stand currently,” Jefferies said in a note.
In other words, the market is not anticipating new relief measures but rather a pause. Although Fed Chair Jerome Powell claims that nothing is set in stone, analysts are skeptical about the likelihood of a third rate cut at the end of 2025. For that to happen, the Fed's hawks will require much more convincing evidence.
Despite the government shutdown and partial lack of data, the overall picture has become clearer. The uncertainty that hindered the Fed at the beginning of the year is dissipating: the labor market has cooled, inflation has stabilized, and forecasts now appear more robust. According to Jefferies, recent data revisions have removed the last concerns regarding the current trajectory of interest rates.
The end of 2025 indeed saw easing measures following revisions to employment data. However, in 2026, the balance may shift in the opposite direction: fiscal stimulus and tax incentives proposed by the Trump administration could accelerate growth in the latter half of the year.
Adding a more conciliatory tone to trade discussions and the absence of tariff wars may provide the Fed with a convenient reason to pause its easing cycle. Of course, this assumes that economic data or personnel changes within the regulator do not bring surprises.
After two years characterized by rising interest rates, inflation, and shutdowns, the market may finally experience something uncommon—stability, albeit potentially just for a short period.
