Central bank scanner: Rate cuts will abate in 2026

European Central Bank (ECB):

• Recent Action (December 18): No change in the policy rate. Policymakers’ growth forecasts were revised higher for the second time in as many quarters. The ECB expects inflation to sit below its 2% target for the next two years.
• Upcoming (February 5): No change in the policy rate is expected. The ECB has wrapped up its cutting cycle, barring unforeseen shocks. President Christine Lagarde said neither hikes nor cuts are being discussed at this time.

Federal Reserve (Fed):

• Recent Action (December 10): The Fed cut 25 basis points. Three voting members dissented: one voted for a 50-basis point cut while two opted for no cut. Stubborn core inflation, which strips out food and energy prices, is forecast to remain firmly above the Fed’s 2% target through much of 2026. The Fed started purchasing Treasury bills to ensure 1) markets do not seize due to liquidity problems and 2) to ensure the short-term rate will fall.
• Upcoming (January 28): No change in the policy rate is expected, as the Fed lets the dust settle on data distortions due to the government shutdown. The consensus for a pause is solid. The largest outlier is Governor Stephan Miran, who is expected to dissent in favor of a one-half percent before returning to the helm at the Council of Economic Advisers at the White House. Financial markets have not changed their pricing for rate cuts, despite an escalation of tension between the administration and Fed Chairman Jay Powell. Investors are betting the Fed keeps its independence from political influence. We expect three rate cuts in 2026, starting at the June meeting.

Bank of Canada (BOC):

• Recent Action (December 10): No change in the policy rate. The unemployment rate rebounded to 6.8% in December following its lowest level since mid-2024 the prior month. Growth surprised to the upside in the third quarter after contracting in the prior period.
• Upcoming (January 28): No change in the policy rate is expected. Policymakers indicated that if the economy continues to progress as forecast, then there will be no further cuts. The outcome of the USMCA renegotiation this year be could alter the outlook. The administration has signaled that it is willing to keep the agreement trilateral in scope, despite fears that it would push for bilateral agreements instead.

Central Bank of Brazil:

• Recent Action (December 10): No change in the policy rate. The Selic sits at a restrictive 15%. Inflation expectations remain elevated, despite a cooling of inflation.
• Upcoming (January 28): The CBB is forecast to cut rates within the next two meetings. Headline inflation continues to cool, now at its lowest point in a year. Policymakers have indicated they’ll keep rates restrictive to ensure inflation is quashed. The Bank of Brazil has been among the most adamant central banks in defending its independence from political influence given the country’s inflation history.

Bank of Japan (BOJ):

• Recent Action (December 19): The BOJ hiked 25 basis points. Long yields are now the highest on record, but inflation remains higher than policymakers would like. Economic growth decelerated in the third quarter.
• Upcoming (January 23): The BOJ is forecast to hike 25 basis points. Bank lending picked up, suggesting financial conditions are not overly restrictive. The BOJ is expected to increase the policy rate two more times by the end of 2027.

Reserve Bank of India (RBI):

• Recent Action (December 5): The RBI cut 25 basis points, in a unanimous vote. Headline inflation is nearing 0%; expectations for decelerating growth prompted the cut.
• Upcoming (February 5): The RBI is forecast to cut rates once more in 2026. Rupee weakness could scuttle this but the bank would likely rely on foreign exchange intervention, as opposed to using the policy rate to prop up the currency.

Bank of England (BOE):

• Recent Action (December 18): The BOE cut 25 basis points in a 5-4 vote. November inflation was the lowest in eight months, though still above the central bank’s comfort level. Third quarter growth barely stayed in positive territory. BOE Governor Bailey sees “some additional easing in the future” but is focused price stability.
• Upcoming (February 5): The BOE is forecast to cut 25 basis points. Upward pressure from government wage gains is unlikely to shift policy. Two more cuts are expected this year.

Bank of Mexico (Banxico):

• Recent Action (December 18): Banxico cut 25 basis points. Core inflation remains above the central bank’s target range. A third quarter contraction pulled down Banxico’s growth forecast for 2025, which was a key driver of the cut.
• Upcoming (February 5): No change in the policy rate is expected. Policymakers have struck a cautious tone of late. The recent cooling of inflation is unlikely to be enough to prompt a cut, though January price data could influence the decision. Policymakers expect growth to bounce back in 2026 and inflation to reach their target in the second half of the year.

Reserve Bank of Australia (RBA):

• Recent Action (December 9): No change in the policy rate. Inflation came in above expectations in October and appears to be more persistent than previously thought.
• Upcoming (February 2): No change in the policy rate is expected. Trimmed mean inflation rose for the fourth straight month but slowed on an annual basis. Without inflation cooling, policymakers indicated rate hikes would be on the table.

People’s Bank of China (PBOC):

• Recent Action (December 20): No change in the policy rate. Inflation remains near 0%: core inflation reached deflationary territory in December. Third quarter growth was the lowest in a year. Overcapacity is a major problem, which additional rate cuts could exacerbate.
• Upcoming (January 19): The PBOC is forecast to gradually cut rates by the end of 2026. Tensions with the US have lessened. Weak loan growth and slowing government borrowing will likely prod policymakers to lower rates. The economy has held up better than expected in the face of US tariffs due to additional stimulus and shifting exports to the rest of the world. Domestic demand remains sluggish.

Central Bank of Turkey (CBRT):

• Recent Action (December 11): The CBRT cut 150 basis points to 38% from 39.5%. That is down from a peak of 50% at the end of 2024. An improving inflation outlook and softened third quarter growth supported the decision.
• Upcoming (January 22): The CBRT is forecast to cut rates throughout 2026; the size of the cuts is in question. Weak demand, credit growth and better-than-expected December inflation point to further easing. Policymakers are determined to keep policy restrictive to restore the central bank’s inflation-fighting credibility and get inflation down.