A top Wall Street economist is breaking with the Federal Reserve and warning that interest-rate cuts may be off the table completely through 2026 as inflation and the Iran War reshape the outlook.
Michael Feroli, the chief U.S. economist for J.P. Morgan, disagrees with the Federal Reserve’s new forecast on interest-rate cuts this year.
Feroli told CNBC March 19 that the Fed will keep interest rates on hold for the rest of 2026.
He also said the central bank’s next move will be a rate hike in 2027.
“The conflict in the Middle East adds a whole new wrinkle,” Feroli said one day after the Federal Open Market Committee voted 11-1 to continue to pause the benchmark Federal Funds Rate at 3.50% to 3.75%.
It was the second FOMC meeting in a row to hold rates but the first since the Iran War erupted.
In its press release, the FOMC said available indicators suggest that economic activity has been expanding at a solid pace.
“Uncertainty about the economic outlook remains elevated. The implications of developments in the Middle East for the U.S. economy are uncertain,’’ the release said. “The Committee is attentive to the risks to both sides of its dual mandate.”
What the Fed dual mandate requires for jobs, prices
The Fed’s dual congressional mandate requires it to balance full employment and price stability.
- Lower interest rates support hiring but can fuel inflation.
- Higher rates cool prices but can weaken the job market.
The two goals often conflict, operate on different timelines and are influenced by unpredictable global events like pandemics and wars.
More Federal Reserve:
Even before the outbreak of the Iran War, the Fed faced a dilemma from worrisome risks to both sides of its congressional mandate: higher unemployment rates and sticky inflation.
Federal Reserve Bank of New York via FRED®
How the Federal Funds Rate affects you
The benchmark Federal Funds Rate impacts nearly all Americans.
That’s because it guides interest rates for auto and student loans, home-equity loans and credit cards.
It also impacts the 10-year Treasury bond which in turn affects mortgage rates in the stagnant housing market.
Billions of dollars in taxpayer money — primarily from individual tax returns and payroll taxes — pay the interest on the nation’s $38.9 trillion debt.
For consumers, a delayed rate cut could mean higher borrowing costs during an affordability crisis causing many Americans to scramble to pay energy, grocery, shelter and healthcare bills in a “low-hire, low-fire” labor market.
FOMC paused rate cuts in January
The FOMC voted 10-2 to hold interest rates steady at 3.50% to 3.75% in January after three continuous cuts of 25 basis points in its last three meetings of 2025.
Those cuts were based on data showing increasing weakening in the labor market and cooling inflation, although still sticky and tariff-laced.
Related: Fed split holds as Iran war scrambles rate path
Fed Chair Jerome Powell told reporters after the March 18 meeting that the economy was settling into a moderately neutral range.
A neutral range for economists means monetary policy is neither stimulating nor restricting economic growth.
Fed “dot plot” calls for one rate cut in 2026
The Fed’s “Summary of Economic Projections” provides its estimates of inflation, unemployment, and economic output, in addition to estimates of interest rates that officials see as most appropriate policy over a three-year horizon.
The interest rate estimates, also known as the Fed’s “dot plot,” are closely watched on Wall Street for insight into the central bank’s thinking and plans.
The SEP is a quarterly report from all 19 Fed officials, including the 12 voting members of the FOMC.
The March “dot plot” calls for a single 25 basis point rate cut in 2026, and an additional 25 basis point cut in 2027, the same as the December 2025 forecast.
But Powell noted in his press conference that the rate cut was not guaranteed, especially if the projected decrease in inflation doesn’t occur.
“If we don’t see that progress, then you won’t see the rate cut,” he said.
The March “dot plot” projections are more uncertain than in the past because of the Iran War, Powell said.
The CME Group FedWatch Tool expects a 27.5% likelihood of a 25 basis point interest rate cut in December.
Feroli cites inflationary pressures in PCE, CPI
The latest inflation data show prices that continue “to run too hot for comfort,” according to Feroli.
- January Core PCE: The core Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge, rose 3.1% year-over-year. It increased by .04% on a monthly basis.
- February Core CPI: The core February Consumer Price Index (CPI) remained steady at a 2.5% annual rate, the same as January. The core CPI rose 0.2% in February.
“We have an inflation problem,’’ Feroli said, while noting that it was running above the Fed’s 2% target but adding that it was not “intractable.”
Given the “pretty favorable economy,’’ Feroli said inflation “should get better over time.”
Related: Former Fed insiders issue stark warning on U.S. economy