Fed to deliver two cuts in 2026 – USD falls amid less hawkish meeting than expected

The Dollar has fallen after the Fed failed to deliver the “hawkish cut” that markets had been anticipating. There were only two hawkish dissenters that opposed a cut, which is not quite as many as investors had braced for. Powell hinted that the Fed would sit on its hands in January, although he far from gave the impression that a long pause in the cycle was on the way, as he expressed a willingness for further cuts in order to support the labour market.

What is increasingly apparent is the widening disagreements among FOMC officials. The main takeaway from the dot plot is that the median member continues to see just one cut in each of the next two years - as they did in September.

Yet, FOMC participants now have such a wide range of views on rates that markets are left with very little clarity as to the extent of easing that can be expected.

We favour two cuts in 2026, although clearly the Fed is keeping its options open, which we think is a sensible approach given the lack of data due to the federal shutdown.