By 2026, the Federal Reserve's interest rate will still be stable at 3.50%-3.75%. Since the last 25 basis point "small move" at the end of last year, the decision-makers haven't taken further action. The latest dot plot indicates that the median rate by the end of the year could drop to 3.4%, meaning at most one more 25 basis point cut throughout the year. On the data front, economic growth expectations have been revised up to 2.3%, inflation is expected to stay at 2.4%, and the unemployment rate is at 4.4%—overall, the economy remains resilient, but inflation hasn't fully subsided, and the probability of significant easing is low.

There are considerable disagreements within the Federal Reserve. The hawkish camp has 7 officials advocating for zero rate cuts in 2026, while a few doves dream of a substantial easing of 150 basis points. This divergence reflects vastly different judgments about the economic outlook. Wall Street is more pragmatic; mainstream views from Goldman Sachs and Morgan Stanley bet on two rate cuts (50 basis points) for the year, with the target range falling between 3.00%-3.25%. Institutions like iShares are also cautious, thinking one or two cuts are enough. Many are also watching for possible resignation of Chair Powell in May—whether the new chair will adopt a more moderate stance remains to be seen.

Of course, there are more aggressive voices. Moody’s Zandi is optimistic about three rate cuts in the first half of the year, and some Citigroup analysts also echo a 75 basis point total, reasoning that employment may continue to cool and policy conditions could shift. But honestly, the likelihood of three cuts happening is quite low—unless unemployment suddenly worsens or inflation obediently drops, the Fed will likely stick to "data dependence" and proceed cautiously.

The real focus is on the January 27-28 FOMC meeting, when a new round of dot plots will be released. Will hawks successfully hold their ground, or will market expectations shift? Attention will also be on the new chair candidate, the ongoing impact of tariff policies, and employment data performance—this rate battle is far from over, and reversals and surprises could happen at any time.