Fed Signals Just One 2026 Rate Cut After Hawkish Dot Plot as Inflation Risks Persist and Labor Market Cools

In its December briefing, MUFG reports the Federal Reserve voted 9-3 to trim rates by 25 basis points, while officials acknowledged a gradual cooling of the labor market and an evolving inflation backdrop affecting policy assumptions.

Chair Powell underscored meaningful downside risks facing the labor market, stressing that the path to sustainable gains remains data dependent and that inflation dynamics require continued vigilance.

On inflation, officials noted that if no new tariffs are imposed, goods inflation may peak in early 2026, though persistence risk remains. The dot plot shows the median forecast calls for a single rate cut in 2026, a hawkish stance vs markets pricing roughly two cuts.

Overall, the Fed remains in a favorable position to patiently monitor the economy, with the near-term bias toward data dependency rather than complacency. Looking ahead, leadership changes in the second half of next year could add uncertainty to the policy outlook.