Fed: Two Rate Cuts Expected in 2026 – Rabobank

On 2026-03-19, Rabobank’s Senior US Strategist Philip Marey reported that the Federal Open Market Committee (FOMC) left the federal funds rate unchanged in March 2026. Despite raising inflation projections, the Fed still anticipates one rate cut within the year. Rabobank revised its forecast, now expecting two rate cuts in 2026—one in September and another in December—down from three previously anticipated cuts. Marey emphasized that the Fed’s reaction to inflation, particularly in light of the conflict in Iran, suggests a more cautious approach to future rate cuts. He noted, “Given the sanguine reaction of the FOMC to the inflationary impact of the war with Iran, we drop only one rate cut from our forecast for 2026.”

This shift in expectations aligns with the broader market sentiment, which has been cautious amid persistent inflationary pressures and geopolitical uncertainties. Other sources, including analysts from Goldman Sachs and BlackRock, generally support the notion of continued rate cuts, albeit with varying timelines and frequency.

The Fed’s current stance is reflective of a broader macroeconomic environment characterized by mixed signals. Inflation remains a concern, with recent projections indicating it could persist above the Fed’s target. The labor market is showing signs of cooling, which could necessitate further easing of monetary policy to support economic growth. The geopolitical landscape, particularly the situation in Iran, poses risks that could disrupt economic stability and influence the Fed’s policy decisions.

The ongoing debates within the FOMC regarding the balance between inflation control and economic growth have led to a divergence in policy expectations. Some members advocate for maintaining rates to combat inflation, while others support cuts to stimulate growth. This internal conflict could lead to volatility in the USD and other currencies as markets react to evolving policy signals.

Following the announcement from Rabobank, the USD exhibited slight volatility against major currencies, with the EUR/USD trading at approximately 1.09, reflecting a minor decline. The DXY index, which measures the USD against a basket of currencies, showed a slight uptick, indicating a mixed market response. Yields on US Treasuries remained stable, with the 10-year yield hovering around 3.50%, suggesting that investors are pricing in the likelihood of future rate cuts but remain cautious about immediate moves.

Futures markets are currently pricing in a 50% probability of at least one rate cut by the end of 2026, with expectations for further easing contingent on inflation trends and economic indicators. This reflects a cautious optimism among investors regarding the Fed’s ability to navigate the current economic landscape.

The anticipated rate cuts by the Fed could lead to a weaker USD in the medium term, particularly if inflation continues to rise or if economic growth falters. Key scenarios for FX investors include:

• Base Case: If the Fed proceeds with the expected cuts in September and December, the USD could weaken against the EUR, potentially pushing the EUR/USD towards resistance levels around 1.10.
• Upside Scenario: Should inflation remain contained and economic indicators improve, the Fed may reconsider its cutting strategy, leading to a stronger USD and a potential drop in the EUR/USD towards 1.08.
• Downside Scenario: If geopolitical tensions escalate, particularly in Iran, and inflation pressures mount, the Fed may be compelled to act more aggressively, potentially leading to a sharper decline in the USD and pushing EUR/USD above 1.10.

Key technical levels to watch include support at 1.08 and resistance at 1.10 for the EUR/USD pair. Additionally, fluctuations in risk appetite due to geopolitical events could spill over into other currency pairs, impacting commodities like gold and oil, which are sensitive to USD movements.

Several risks could alter the current outlook for the USD and the broader FX market:

• Geopolitical Risks: Escalation in the Iran conflict could lead to increased volatility in oil prices and inflation, prompting the Fed to adjust its rate cut timeline.
• Economic Data Delays: Missing or delayed economic data releases, such as Non-Farm Payrolls (NFP) or inflation reports, could lead to uncertainty in market expectations.
• Contradictory Messaging from Policymakers: Diverging views among FOMC members regarding the necessity and timing of rate cuts could create confusion and volatility in the markets.

Investors should monitor the following upcoming events that could influence FX markets:

• FOMC Meeting: Scheduled for 2026-06-15, where the Fed will discuss monetary policy and potentially provide insights into future rate cuts.
• Inflation Reports: Key inflation data releases, particularly the Consumer Price Index (CPI) on 2026-04-12, could significantly impact market expectations.
• Geopolitical Developments: Ongoing developments in the Iran conflict and other geopolitical tensions will be critical in shaping market sentiment and economic forecasts.

Medium. The analysis is based on consistent reporting from multiple sources, but the evolving geopolitical landscape and internal Fed dynamics introduce uncertainties that may affect future forecasts.