International Monetary Fund: Federal Reserve has limited room for interest rate cuts in 2026

The International Monetary Fund (IMF) stated that although US inflation is expected to fall back to the Federal Reserve's 2% target in the first half of next year, policymakers have little room for interest rate cuts this year. According to the IMF's annual assessment of the US economy, IMF staff anticipate only one opportunity for a rate cut by the end of 2026. "Overall, staff believe there is limited room for policy rate cuts over the next year. More significant monetary easing would require a significant deterioration in the labor market outlook and no increase in inflationary pressures, given the recent rise in oil and commodity prices leading to upward inflation expectations," the IMF Executive Director noted in a separate statement. He added that given the Fed's current policy is close to neutral, "there is limited room for rate cuts in 2026, especially considering rising energy prices, the transmission effects of core inflation, and the upside risks to global commodity prices, which could further delay the achievement of the inflation target." (Jinshi)