The US Federal Reserve intends to push its policy interest rate down to 3.6% this year, which is likely to tighten an already-strong labor market and could cause inflation to accelerate at a faster rate. In that event, the Fed would have cut rates this year, only to have to reverse course in 2026.

WASHINGTON, DC – As was widely expected, the US Federal Reserve has lowered its policy rate by 25 basis points, to 4-4.25%. A slight majority of the rate-setting Federal Open Market Committee (FOMC) expect to cut again at both the October and December meetings, with additional easing expected in 2026. But the Fed is being too dovish, and risks setting itself up to hike interest rates next year.