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With interest rates reaching neutral levels, how much can the Federal Reserve lower them in 2026?
🔥The Federal Reserve's own indication that monetary policy is now close to neutral has raised expectations for further interest rate cuts next year, suggesting that markets should brace for tightening rather than rescue.
Federal division near neutral level a warning sign
Periods when policy is close to neutral usually require a unified Federal Open Market Committee, as mistakes in either direction can have significant consequences. Excessive cuts risk reigniting inflation, especially with many expecting fiscal policy to become more expansive next year under President Donald Trump.
🔥However, the recent meeting highlighted increasing divisions among Federal officials, raising questions about policymakers' confidence in their own forecasts.
🔥With attention focused on the neutral interest rate, another danger looms: that the Federal Reserve may ultimately have to shift away from easing entirely.
🔥Optimists say there are two rate cuts in 2026, but I say the new Federal Reserve Chair will have a different role, and thus current expectations are premature $BTC
