Wells Fargo economists expect the Federal Reserve to delay rate cuts due to higher oil prices and inflation that is proving more persistent. They still forecast 50 basis points of cuts in 2026, split into 25 basis point moves in September and December.
They cite inflation re-accelerating while the labour market cools only gradually, which complicates decisions under the Fed’s dual mandate. They also state that the labour market is modestly above full employment and that an energy price shock adds downside risk.
Fed Policy Outlook
Monetary policy is described as restrictive when comparing the current federal funds rate of about 3.625% with the SEP median longer-run estimate of 3.125%. Higher energy prices could feed into core inflation, but this may be offset by slower inflation in goods affected by tariffs.
They indicate the next policy move is more likely to be a cut than a hike, though timing could shift later. The article notes it was produced using an AI tool and reviewed by an editor.
Looking back at expectations from 2025, the view was for the Fed to exercise an abundance of patience due to sticky inflation and energy prices. Now in April 2026, those concerns have materialized, as the re-acceleration in prices continues to be a major headwind for the economy. We’ve seen West Texas Intermediate crude oil prices recently push past $85 a barrel, further complicating the inflation picture for the coming months.
The predicted gradual cooling in the labor market has also failed to appear, which changes the policy calculus significantly. The March jobs report, for instance, showed the economy adding a surprisingly strong 303,000 jobs, a figure that runs counter to the narrative of a weakening economy. This robust employment gives the Federal Reserve more justification to hold rates higher for longer, as its inflation-fighting mandate takes priority.
Market Pricing And Rate Cut Timing
For derivative traders, this means the entire timeline for rate cuts is being repriced. The market has aggressively pushed back its expectations for the first cut, with Fed funds futures now suggesting the odds of a cut by the September meeting are fading fast. This environment suggests positioning for sustained rate pressure and potential volatility spikes through the summer.
The core idea that the next policy move is more likely a cut than a hike remains intact, but the start date is now a major question. The latest Consumer Price Index data came in hotter than expected at 3.5%, reinforcing the notion that inflation is not yet defeated. Consequently, we should consider that any easing is unlikely until the December meeting at the earliest, with risks skewed towards even further delays into 2027.
