Fed Rate Cuts in 2025 and 2026: What Happened and What's Expected Next

The Federal Reserve cut interest rates three times in 2025, bringing the federal funds rate from a range of 4.25–4.50% down to 3.50–3.75%. That continued the cutting cycle that started in September 2024. For 2026, the Fed's own projections point to only one more rate cut; markets and some banks expect one or two. Goldman Sachs has penciled in cuts in March and June, taking the rate to 3–3.25%; PIMCO and others see the Fed in wait-and-see mode through at least May, with a new chair taking over in June 2026. Inflation, the labor market, and that leadership change will drive the path of Fed rate cuts in 2026.

Background: From Hikes to Cuts

The Fed raised rates aggressively in 2022–2023 to fight inflation, then held through much of 2024 before starting to cut. Three cuts in 2025 reflected progress on inflation and a desire to avoid overtightening. Core PCE inflation has moved down toward the Fed's 2% target, though it remains sticky in some measures. Growth and employment have cooled from earlier highs; some Fed officials have expressed discomfort with cutting further until they see more data. CNBC, Goldman Sachs, PIMCO, and Morningstar have all summarized the 2025 actions and 2026 outlook.

2026: One Cut or More?

The median Fed dot plot has signaled one cut in 2026. Market pricing has implied one to two. Goldman Sachs expects two cuts (March and June), partly on weaker underlying job growth (e.g., around 39,000 in one September read) and core PCE near 2%. PIMCO describes the Fed entering 2026 in wait-and-see mode, with the policy rate around neutral and some dissents in recent meetings; they see rates likely on hold through May, with possible gradual cuts under new leadership later in the year. Tariffs and fiscal policy add uncertainty to the inflation path.

What Could Change the Path

Faster softening in the labor market could argue for more cuts; persistent inflation or a rebound could argue for fewer or none. The new Fed chair (taking office June 2026) could shift tone or pace. Geopolitical shocks or financial stress could force a faster or slower response. For now, the base case is minimal additional easing in 2026.

Impact on Borrowers and Savers

Rate cuts in 2025 already lowered borrowing costs for mortgages, auto loans, and credit cards from their peaks; one more cut in 2026 would extend that only modestly. Savers will see deposit and bond rates drift down if the Fed eases again. The bigger story is that the Fed is close to a neutral stance rather than still tightening or cutting aggressively.

What's Next

Watch each FOMC statement and dot plot for changes to the 2026 median. Jobs and inflation prints will drive whether the Fed delivers one cut, two, or none. The chair transition in June 2026 will be the next structural moment for Fed policy and communication.