Wall Street Giants Raise Bets on 2026 Fed Rate Cuts

Major financial institutions, including Morgan Stanley and Citigroup, are revising their forecasts to predict more aggressive Federal Reserve rate cuts in 2026. This shift reflects a growing consensus on Wall Street that as economic momentum cools, the central bank is preparing to ease monetary policy.

The updated outlook is driven by a combination of weaker economic data and anticipation of new leadership at the Federal Reserve. With President Trump set to nominate a new Fed Chair, analysts are reassessing how quickly policymakers might pivot to support economic growth.

Morgan Stanley Adjusts Its Timeline

Morgan Stanley now projects a total of 50 basis points in rate reductions for 2026, delivered through two separate 25-basis-point cuts. The bank has pushed back its expected timing for these moves from January and April to June and September.

This adjustment signals a degree of caution regarding near-term inflation, even as signs of an economic slowdown become more apparent. Morgan Stanley’s forecast suggests the Fed will likely wait for clearer economic signals before taking action.

Citigroup Calls for Deeper Easing

Citigroup has adopted a more dovish stance, now forecasting 75 basis points of cuts in 2026. The bank anticipates three 25-basis-point reductions occurring in March, July, and September.

This outlook places Citigroup at the more aggressive end of the spectrum among major banks. It indicates a heightened concern about growth risks and a strong conviction that inflation will subside enough to justify earlier and more substantial rate cuts.

A Broader Consensus Forms Around Easing

The move toward expecting more rate cuts is not limited to Morgan Stanley and Citigroup. A broader Wall Street consensus has emerged, with several key players aligning their forecasts.

Major banks now projecting 50 basis points of total cuts in 2026 include:

• Goldman Sachs

• Bank of America

• Wells Fargo

• Barclays

While specific timelines vary between institutions, the general agreement on policy easing marks a significant shift from earlier expectations.

Data and Politics Drive the New Outlook

The revised forecasts are shaped by two primary factors. First, recent jobs reports have been weaker than anticipated, fueling concerns about slowing economic activity. However, persistent inflation remains a complicating variable, leading some analysts to believe the Fed may pause in early 2026 before initiating cuts.

Second, political dynamics are playing a key role. Wall Street widely expects that a new Fed Chair appointed by President Trump could be more inclined to favor lower interest rates. This view aligns with comments from Treasury Secretary Scott Bessent, who has emphasized the need to reduce borrowing costs.

Where Interest Rates Could Land

Based on these projections, the federal funds rate is expected to settle into a neutral range of approximately 2.75% to 3.25% by the end of 2026. Whether the Fed ultimately delivers two or three cuts, the message from Wall Street is becoming increasingly unified: the next major policy move will be downward.