Wall Street’s largest banks are pushing back expectations for US interest rate cuts, signalling a growing consensus that the Federal Reserve will keep policy tight for longer as the labour market remains resilient. The shift follows December employment data that, while softer on headline job growth, failed to show the kind of deterioration that would force early easing.
According to Reuters, J.P. Morgan now expects the Fed’s next move to be a rate hike in 2027, withdrawing its earlier outlook for a cut this year. The bank cited a falling unemployment rate and steady wage growth as evidence that labour market conditions are not weakening fast enough to justify near-term action.
Goldman Sachs and Barclays have also delayed their rate cut forecasts, joining Morgan Stanley in pushing expected easing into mid-to-late 2026. Goldman now anticipates two 25-basis-point cuts in September and December 2026, arguing that if the labour market stabilises, the Federal Open Market Committee could shift from risk management to a slower normalisation phase.
December’s US jobs report showed employment growth slowing more than expected, but the unemployment rate fell to 4.4% and wage gains remained solid. That combination has reinforced expectations that the Fed will keep borrowing costs unchanged at its January meeting. Markets have responded accordingly, with traders pricing a roughly 95% chance of no change, according to the CME FedWatch.
The recalibration highlights how sensitive rate expectations remain to incremental data surprises. While some banks, including Wells Fargo and Bank of America, still expect cuts to begin later this year, the broader trend points toward patience rather than urgency.
For Europe and global markets, the implications are significant. A higher-for-longer Fed keeps financial conditions tight worldwide, complicating policy choices for other central banks and reinforcing the dollar’s influence on capital flows. As investors reassess the likelihood of early easing, the focus has shifted from when cuts begin to whether they arrive at all in the near term.