T. Rowe Price's Chief U.S. Economist Blerina Uruçi shared her outlook ahead of the upcoming Federal Open Market Committee (FOMC) meeting. Her baseline scenario suggests the December rate decision could be contentious, as the Fed's policy stance relies solely on September employment and inflation data, along with select high-frequency economic indicators.
The Fed may implement one more rate cut this year while signaling a pause in monetary policy adjustments until 2026—a move markets could interpret as a "hawkish cut." While market pricing currently reflects over a 90% probability of a December cut, Uruçi believes the actual likelihood may be lower. However, with Chair Powell's term nearing its end, she expects the Fed to avoid aggressively dampening market expectations.
The key divergence between T. Rowe Price and market consensus lies in 2026 policy expectations. Markets appear overly "dovish" in pricing aggressive easing during the first half of 2026. If T. Rowe Price's macro forecasts prove accurate—including reaccelerating inflation in Q4 2025 and resilient growth—the Fed would struggle to meet market expectations for further easing next year, likely pausing after a December cut.
Uruçi notes heightened uncertainty around second-half 2026 monetary policy, which hinges not only on macroeconomic trends but also on the next Fed chair's policy leanings. Markets are monitoring former National Economic Council Director Kevin Hassett as a potential frontrunner for the position, with expectations he could advocate for more accommodative policies in late 2026.
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