Wells Fargo economists now expect the Federal Reserve (Fed) to delay easing in response to higher Oil prices and stickier inflation. They still projects 50 bps of rate cuts in 2026, delivered as 25 bps moves in September and December, with the federal funds rate remaining in restrictive territory versus longer-run estimates.

Delayed easing and cautious Fed stance

"Policy trade-offs point to prolonged Fed patience. With inflation re‑accelerating and labor markets still gradually cooling, the Fed’s dual mandate is pulling in opposite directions. The Fed will exercise an abundance of patience as a result, and we have pushed out the start of easing but still expect 50 bps of total cuts this year, now penciled in as 25 bps moves at the September and December FOMC meetings."

"The labor market remains modestly on the wrong side of full employment and the energy price shock adds a new source of downside risk. Furthermore, monetary policy is already in restrictive territory when comparing the spot federal funds rate (~3.625%) to the SEP's median longer-run estimate (3.125%). Higher energy prices may bleed into core inflation, but this should be mitigated by slower inflation in tariff-sensitive goods. Taken together, we think the next move from the FOMC is still more likely to be a cut than a hike, even if the risks are skewed toward later and/or less easing."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)