At the beginning of the year, there was widespread belief that the Federal Reserve would cut interest rates in 2026, with the market generally pricing in one to two rate cuts. To date, the Fed has not lowered rates, and rate cuts are off the table for the Fed’s next meeting in mid-June, or even the next few meetings after that. Businesses should assume the Fed will not cut rates until late in 2026, if it cuts them at all this year.
The Fed will not lower rates in the coming months because current economic circumstances do not call for lower rates. Inflation is rising. Some of the recent increase is because of the spike in oil and gas prices due to the Iran war. Those price jumps will moderate eventually, and the Fed looks through temporary circumstances like that. Yet even excluding volatile food and energy prices, inflation was still 3.2% in March, up from 3% in February. That is well above the Fed’s 2% inflation target and headed in the wrong direction.
Inflation is not the only data the Fed considers in its interest rate decisions. It looks at the overall growth of the economy and the labor market too. If either was under pressure, a rate cut could be appropriate even with inflation stuck too high. But the economy is growing around 2% and employment is steady. In fact, we added 115,000 jobs in April. Neither the growth rate nor the labor market calls for lower interest rates.
The Fed Board, signaled clearly at its last meeting in late April that it will not be cutting rates any time soon. In an unusual occurrence, three of the 12 members of the committee broke ranks with 8 members voting in the majority to hold rates steady (1 member wanted a rate cut now) because they wanted the Fed to signal it may have to raise rates in the near future, rather than lower them.
It is important for businesses to understand not only that rates are going to remain steady for the next several months, but also that this is the right decision by the Fed. Lowering rates while inflation is rising, the economy is growing at a stable pace, and employment is growing, would hurt the economy and businesses, because it would lead to higher inflation and undermine growth.
The Fed should keep rates steady until inflation resumes a downward trajectory toward the 2% target. That could still happen in the coming months and allow the Fed to lower rates later this year, but businesses need to anticipate interest rates will remain steady until the underlying data changes and creates the conditions conducive to lower rates.
About the author
Curtis Dubay
Curtis Dubay is Chief Economist, Economic Policy Division at the U.S. Chamber of Commerce. He heads the Chamber’s research on the U.S. and global economies.
