The Federal Reserve's 2026 rate cut expectations are changing: the magnitude may not exceed 50 bps

The direction of U.S. monetary policy is facing a critical turning point. According to the latest market analysis from First Abu Dhabi Bank, investors need to be fully prepared for the future interest rate environment.

The bank's analysis team points out that the short-term outlook for U.S. interest rates is subject to multiple uncertainties, and global capital markets should remain vigilant about various possible policy outcomes. This means that simple linear forecasts are no longer applicable to the current complex economic situation.

**Limited rate cut scope, constrained policy space**

First Abu Dhabi Bank predicts that the total interest rate cut in 2026 is unlikely to exceed 50 bps. This relatively conservative rate cut expectation reflects the central bank's cautious attitude toward the economic outlook.

**Multiple factors determine the interest rate trend**

The annual interest rate direction will be primarily driven by three major factors: first, the true trajectory of inflation data; second, the stability of the labor market; third, the evolution of various policy risks. Any deviation in these three variables could alter the Federal Reserve's policy stance, thereby affecting the magnitude and pace.

For market participants concerned with economic cycles, this forecast suggests that the interest rate environment in 2026 may be more complex than expected, requiring continuous monitoring of these key economic indicators.