Morgan Stanley and Citigroup have raised their expectations for Federal Reserve rate cuts this year, joining a growing chorus on Wall Street that monetary policy is set to ease as economic momentum cools. Both banks now forecast at least 50 basis points of rate reductions in 2026, with Citigroup calling for an even deeper move.
The revised outlook reflects weaker recent economic data and shifting expectations around Federal Reserve leadership, as President Trump prepares to nominate a new Fed Chair. Together, those factors have pushed banks to reassess how quickly policymakers may pivot toward supporting growth.
Morgan Stanley Pushes Cuts to Mid-Year
Morgan Stanley now expects a total of 50 basis points of easing, delivered through two 25-basis-point cuts. The bank has adjusted its timing, moving the expected cuts from earlier projections in January and April to June and September 2026.
The change reflects caution around near-term inflation dynamics, even as signs of slower growth begin to accumulate. Morgan Stanley’s forecast implies a measured approach, with the Fed waiting for clearer confirmation before acting.
Citigroup Calls for Deeper Easing
Citigroup has taken a more aggressive stance. Citi now projects 75 basis points of cuts in 2026, spread across three moves. Its updated schedule points to 25-basis-point reductions in March, July, and September.
That outlook places Citigroup at the dovish end of major bank forecasts, signaling greater concern about growth risks and confidence that inflation pressures will ease enough to allow earlier action.
Broader Wall Street Aligns Around 50 bps
Beyond Morgan Stanley and Citi, the broader consensus has shifted in the same direction. Major banks including Goldman Sachs, Bank of America, Wells Fargo, and Barclays are all projecting a cumulative 50 basis points of rate cuts in 2026.
While the exact timing differs, the convergence around easing marks a notable shift from expectations earlier in the cycle.
Data and Politics Shape the Outlook
Recent jobs reports have come in weaker than forecast, adding to concerns about slowing economic activity. Inflation, however, remains a complicating factor, leading some analysts to expect the Fed to pause in early 2026 before beginning to cut.
Political considerations are also influencing forecasts. Wall Street expects that a new Fed Chair appointed by President Trump could be more receptive to lower rates, aligning with Treasury Secretary Scott Bessent’s emphasis on reducing borrowing costs.
Where Rates Could Land
Under these projections, the federal funds rate would fall into a neutral range of roughly 2.75% to 3.25% by late 2026. Whether the Fed delivers two cuts or three, Wall Street’s message is increasingly clear: the next significant move in rates is expected to be down, not up.
