U.S. Inflation at 2.4% – Are Multiple Fed Rate Cuts Coming?
Chicago Fed President Austan Goolsbee signaled that the Federal Reserve could deliver several more interest rate cuts in 2026 - but only if inflation convincingly moves back toward the central bank’s 2% goal.
Key Takeaways
- The Fed could cut rates several times in 2026 if inflation keeps moving toward 2%.
- Services inflation at 3.2% remains the main obstacle to faster easing.
- Strong January jobs data reduces the urgency for immediate cuts.
Speaking on February 17, Goolsbee stressed that while recent inflation data has cooled, policymakers are not yet ready to declare victory. The path forward, he said, will depend heavily on incoming labor and price reports.
Inflation Cools – But Risks Remain
January’s headline CPI slowed to 2.4% year-over-year, its lowest level since mid-2025. At first glance, that suggests meaningful progress. However, Goolsbee cautioned that the softer reading was partly driven by base effects from last year.
More importantly, services inflation remains elevated at 3.2% annually. That category – often considered “sticky” – continues to worry policymakers. Core CPI held at 2.5%, while core PCE is projected to rise 0.4% month-over-month, potentially marking its strongest monthly increase since early 2023.
If tariff-related price pressures prove temporary, Goolsbee noted, that could open the door to easier policy. But persistent services inflation could delay action.
A 3% Policy Rate as a “Loose Target”
Goolsbee identified roughly 3% as a broad estimate of a neutral policy rate. With the federal funds rate currently at 3.50%–3.75%, reaching that level would likely require two to three 25-basis-point cuts.
The Fed held rates steady at its January meeting after implementing three consecutive reductions in late 2025. Official projections released in December showed a median expectation of just one additional cut in 2026, though officials remain sharply divided.
Labor Market Sends Mixed Signals
January’s employment report complicated the picture. Nonfarm payrolls increased by 130,000 – more than double consensus expectations – while the unemployment rate dipped to 4.3%.
Job growth was concentrated in healthcare and social assistance, and wages rose 0.4% for the month, or 3.7% annually. The resilience of the labor market has made some policymakers cautious about moving too quickly.
Goolsbee described labor and inflation data as the primary “triggers” for upcoming decisions.
Markets Bet on June
Financial markets have adjusted expectations following the cooler CPI reading. According to CME FedWatch data, investors now see a high probability that the first rate cut of 2026 will arrive at the June 16–17 FOMC meeting.
Markets currently assign roughly a 50%–70% chance of a 25-basis-point cut in June, with a smaller probability of a larger move. By contrast, the March 17–18 meeting is widely expected to result in no change.
Wall Street remains split. Goldman Sachs and Morgan Stanley anticipate easing beginning mid-year, while Citigroup has floated the possibility of an earlier move. J.P. Morgan, however, maintains a more cautious stance and sees the Fed staying on hold through 2026.
Leadership Transition Adds Uncertainty
Another key variable is the expected transition at the top of the Federal Reserve. Jerome Powell’s term expires in May 2026, and Kevin Warsh has been nominated as his successor.
Goolsbee expressed support for Warsh, and markets are increasingly pricing in the possibility that the new chair could oversee the first rate cut of the year.
All eyes now turn to the Fed’s March 17–18 meeting, when updated economic projections will provide clearer guidance on whether “several more” cuts are realistic – or premature.
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Alex is an experienced financial journalist and cryptocurrency enthusiast. With over 8 years of experience covering the crypto, blockchain, and fintech industries, he is well-versed in the complex and ever-evolving world of digital assets. His insightful and thought-provoking articles provide readers with a clear picture of the latest developments and trends in the market. His approach allows him to break down complex ideas into accessible and in-depth content. Follow his publications to stay up to date with the most important trends and topics.
