What will the Federal Reserve do in 2026? How many rate cuts will there be? This is currently the hottest topic in the market.

As of early January, the Federal Reserve's benchmark interest rate remains steady at 3.50%-3.75%. Although a rate cut was symbolically implemented at the end of 2025, it was only a 25 basis point reduction, followed by a statement of "no rush." The latest December dot plot shows the median expectation of the Federal Open Market Committee (FOMC) is that rates may only fall to around 3.4% by the end of 2026. In other words, the entire year might see only one minor rate cut.

Data indicates inflation is expected to stick around 2.4%, while economic growth could reach 2.3%—a clear message behind this combination: the economy remains resilient, and there's no need to rush to loosen policy.

Mainstream Wall Street sentiment leans conservative. Goldman Sachs analysts bet that the Fed will pause until the end of the first half, then cut rates once in March and once in June, totaling 50 basis points, bringing the rate down to 3%-3.25%. Institutions like iShares and Morningstar also mostly bet on one or two cuts, but they leave a window open—if a new Fed chair takes over (Powell's term ends in May), more dovish surprises could emerge.

Interestingly, the divergence in the dot plot is huge. Some officials are completely opposed to rate cuts in 2026, while extreme optimists are betting on a 150 basis point reduction—it's as heated as a debate around a dinner table.

Moody's analyst Mark Zandi is among the few more aggressive voices, daring to bet on three rate cuts concentrated in the first half of the year (a total of 75 basis points). His logic is that employment will continue to soften, inflation may fluctuate again, and political pressures (as everyone knows) could influence the outcome. However, this scenario is a niche, fantasy version; the reality might not be so dramatic.

A more likely scenario is: if economic data in the first half isn't very encouraging, the Fed may remain on hold, with at most two rate cuts for the year. To see a "series of three aggressive rate cuts," unemployment would need to suddenly spike or inflation would have to drop rapidly—otherwise, the Fed is likely to proceed at this slow pace.

The key moment is coming— the FOMC meeting on January 27-28, when new dot plot data will be released. That will reveal whether dovishness takes flight or hawkishness locks in the market.

For lending markets and stock investors, buckle up—this roller coaster has just begun.