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Coinpaper 2025-12-25 14:53:51

BlackRock Sees Shallow Fed Cuts in 2026 as Policy Nears Neutral

BlackRock’s 2026 outlook points to measured interest rate cuts, not an aggressive easing cycle, as the Federal Reserve moves closer to a neutral policy stance. The forecast aligns with the Fed’s own projections and recent rate history, which show policymakers cutting cautiously after periods of economic stress rather than rushing toward deep stimulus. The view comes as markets weigh how far and how fast the Fed may ease after the sharp tightening that followed the 2022 inflation surge. Fed History Shows Caution After Major Shocks The federal funds rate has moved in long cycles shaped by crises and recoveries. After the 2008 global financial crisis, the Fed cut rates rapidly toward zero and kept them there for years during the post-GFC recovery. A similar emergency response followed the COVID-19 outbreak in 2020, when rates again fell near zero to stabilize the economy. Federal Funds Rate History. Source: Federal Reserve / iShares That pattern shifted sharply in 2022 as inflation surged. The Fed lifted rates at the fastest pace in decades, pushing the policy rate above 5 percent by 2023. Since then, inflation has cooled, but officials have signaled caution about cutting too quickly, aiming to avoid repeating past stop-and-go mistakes. BlackRock’s analysts frame the current phase as different from prior crises. With growth slowing but not collapsing, they argue that policy no longer needs emergency-level support. As a result, any cuts are likely to be gradual and data-dependent rather than front-loaded. Dot Plot Points to Limited Easing Through 2026 The Federal Open Market Committee’s December 2025 dot plot reinforces that view. The median projection shows the fed funds rate easing from about 3.6 percent in 2025 to roughly 3.4 percent in 2026, then drifting toward 3.1 percent in 2027 and 3.0 percent in the longer run. December 2025 Fed Dot Plot. Source: Federal Reserve That path implies roughly one to two quarter-point cuts in 2026, depending on economic conditions. While some policymakers see room for deeper easing, the highest forecasts in the dot plot stay near 4 percent, highlighting persistent uncertainty around inflation and labor markets. BlackRock ’s base case broadly tracks the median dots, with expectations centered on 25 to 50 basis points of cuts next year. The firm emphasizes that stronger-than-expected employment or sticky services inflation could slow that pace, while a sharper growth slowdown could accelerate it. For now, both BlackRock and the Fed signal the same message. The era of rapid tightening is over, but the shift toward lower rates is likely to be slow, controlled, and far from guaranteed.

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