Fed Official Signals Surprise Shift Toward Deeper 2026 Rate Cuts as Inflation Hits 2.4%
Federal Reserve officials have recently signaled a potential shift toward more interest-rate cuts in 2026, spurred by encouraging inflation data that showed headline inflation dropping to 2.4% in January 2026. Chicago Fed President Austan Goolsbee stated on February 17, 2026, that if recent price hikes related to tariffs prove transitory, the Federal Open Market Committee (FOMC) could lower rates more than the single cut previously forecast for the year.
Key Developments in February 2026
The following factors are driving the shift in Fed sentiment and market expectations:
Encouraging Inflation Data: The Consumer Price Index (CPI) rose just 0.2% in January, the smallest gain since July. Core inflation also ticked down to 2.5%.
FOMC Minutes Reveal Divisions: Minutes from the January 27–28 meeting, released on February 18, 2026, showed a divided committee. While a "vast majority" favored a pause, two members—Stephen Miran and Christopher Waller—dissented in favor of an immediate cut.
Labor Market Resilience: A "sharp upside surprise" in the February 11 jobs report showed payrolls rising by 130,000, far exceeding estimates of 55,000, and the unemployment rate falling to 4.3%.
Leadership Transition: Uncertainty remains as Chair Jerome Powell’s term expires in May 2026, with President Trump nominating Kevin Warsh as a potential successor.
2026 Interest Rate Outlook
Despite the surprise signal for more cuts, the Fed remains in "wait-and-see" mode to ensure inflation sustainably reaches its 2% target.
Meeting Date Current Market Probability for a 0.25% Cut
March 18, 2026 ~7.8% - 23.2%
June 17, 2026 ~51.1%
December 9, 2026 ~31.7%
While some officials like Goolsbee are opening the door to "several more" cuts, others have raised the possibility of rate increases if inflation remains stubborn. Market participants are increasingly betting on a first move in June 2026 rather than March
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