PrintInvestors Bet On 2026 Fed Pivot ? How Deep Will The Cuts Go?
BY Benzinga | ECONOMIC | 12/04/25 11:11 AM ESTMarket expectations for next year's Federal Reserve policy have quietly shifted in recent weeks, and the tone has grown noticeably more dovish.
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Investors now anticipate roughly two and a half rate cuts in 2026, according to the CME FedWatch tool, a mix that essentially means two cuts are fully baked in, while a third is hovering with meaningful probability.
One cut is already priced by June, a second by September, and the odds of a third cut by December stand close to 45%.
As a reminder, the latest Federal Reserve Summary of Economic Projections, released in September, indicated only one cut in 2026.
The repricing has arrived at the same time the market is beginning to look beyond Fed Chair Jerome Powell's tenure. Powell's term expires in May 2026, and traders are already leaning toward the idea that the next chair appointed by President Donald Trump could tilt policy in a more accommodative direction.
Prediction Markets Tilt Toward a Deeper Easing Path
Polymarket's distribution makes the story clearer: traders see a base case of two to three cuts in 2026, but the probabilities stretch well beyond that.
The chance of no cuts is just 3%, and the chance of one cut is only 6%, showing how unlikely investors think a "higher for longer" scenario is next year.
The cluster forms in the middle. The probability of two cuts is about 16%, but the single most popular outcome is three cuts, at roughly 24%.
What stands out, though, is how heavy the tail remains on the dovish side: four cuts carry a 19% chance, five cuts land at 10%, and even six or more cuts collectively hold a mid?single digit share each.
In short, investors may talk about two cuts as the baseline, but prediction markets leave the door wide open to something bigger.
Polymarket Probability Distribution for 2026 Fed Cuts
<figure class="wp-block-table is-style-stripes">| Number of 2026 Cuts | Probability |
|---|---|
| 0 cuts | 3% |
| 1 cut | 6% |
| 2 cuts | 16% |
| 3 cuts | 24% |
| 4 cuts | 19% |
| 5 cuts | 10% |
| 6+ cuts | ~16% combined |
Kevin Hassett Emerges As Trump’s Favorite Fed Chair Pick
Investors rarely price policy moves based on a not-yet-announced central bank leader, but this cycle is different.
While the White House hasn't formally revealed its pick, Kevin Hassett ? the current National Economic Council director ? is now the overwhelming favorite to succeed Powell, with betting markets assigning him a more than 70% probability of appointment.
That alone has nudged the rates market toward a steeper curve, with short-term yields slipping as traders anticipate a more activist approach to cutting next year.
Hassett has repeatedly argued that the Fed should prioritize maximum employment and respond decisively when growth slows. Investors interpret that stance as meaning the hurdle for easing may be lower under a Hassett-led Fed than under Powell.
Most Economists See Cuts Continuing Through 2026
Research desks have started to map out what comes after the upcoming December cut.
Bank of America expects the Fed's Summary of Economic Projections to show two cuts in 2026 and then a long period of stability. In their view, the Fed's policy rate would bottom around 3% to 3.25% and hold there through 2028.
They note that Powell's influence on future guidance could diminish once the administration formally announces his successor, which could nudge markets even further toward a lower-for-longer path.
Goldman Sachs’ chief economist Jan Hatzius expects U.S. growth to reaccelerate to 2 to 2.5% in 2026 as tariff drag fades, tax cuts boost demand and easier financial conditions take hold.
Under this framework, Goldman anticipates a January pause and two cuts by June.
Is The Fed at an Inflection Point?
Consensus across futures markets, betting platforms, and major banks is converging on at least two Fed cuts in 2026, but the real story is the rising likelihood of a third ? or even more.
That responsibility, investors think, will fall to the incoming Chair. The emerging consensus around Hassett suggests the Fed could be more willing to act if growth disappoints.
And while no one is calling for a dramatic pivot yet, the odds of a deeper easing path are very much alive ? and they're rising in tandem with the likelihood that the next Fed Chair views the world through a more dovish lens.
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Image created using artificial intelligence via Midjourney.
