IMF: Fed Has Limited Room for Rate Cuts in 2026

Odaily News According to the International Monetary Fund, although U.S. inflation is expected to fall back to the Federal Reserve's 2% target in the first half of next year, policymakers have little room to cut interest rates this year. Based on the IMF's annual assessment of the U.S. economy, IMF staff project that there may be only one opportunity for a rate cut by the end of 2026. "Overall, staff see limited room for policy rate reductions over the coming year. More substantial monetary easing would require a significant deterioration in the labor market outlook without an increase in inflationary pressures, with recent rises in oil and commodity prices pushing inflation expectations higher." IMF Executive Directors noted in a separate statement that, given the Fed's current policy stance is close to neutral, "there is limited room for rate cuts in 2026, especially considering the impact of rising energy prices, the pass-through effect on core inflation, and the upside risks to global commodity prices, which could further delay the achievement of the inflation target." (Jin10)