Fed Holds Rates Steady Through 2026, Potential Cuts Coming Late 2027

BMO Capital Markets' Senior Economist Jennifer Lee expects the Federal Reserve to keep interest rates steady through 2026, with potential cuts not arriving until late 2027. This means borrowers won't see cheaper borrowing costs anytime soon.

Lee's projection comes at an interesting time for the Fed, with Kevin Warsh confirmed as its new chair in May 2026. New leadership often raises questions about changes to the central bank's direction.

BMO's outlook envisions yields averaging around 4.25% in a post-cut environment, implying gradual rather than aggressive easing. Global developments, such as the conflict in Iran, are complicating factors that could influence the Fed's calculus.