By Nicole Goodkind
Two Federal Reserve governors said Friday they still expect to cut interest rates this year, a reminder that Wall Street may be getting ahead of itself after a week of war-driven anxiety sent rate expectations into a tailspin.
Gov. Christopher Waller and Vice Chair for Supervision Michelle Bowman both spoke publicly on Friday after markets nearly priced out rate cuts entirely for 2026. Gov. Stephen Miran also supports further rate cuts, and dissented from the Fed's Wednesday policy decision to keep rates steady; Miran favors a quarter-point percentage decrease in rates.
Just three weeks ago, traders expected multiple cuts this year. By Thursday, Bank of America analysts said they were fielding client questions about whether the Fed's next move could actually be a interest-rate hike.
But the Fed's own projections, updated just this week, still show one cut this year. Nineteen policymakers contributed to that forecast -- and on Friday, two of them made clear they haven't changed their minds.
Bowman told Fox Business she expects three cuts before the end of 2026, citing concern about a softening job market.
Waller, on CNBC, was more measured but left the door open. "It doesn't mean I'm going to stay put for the rest of the year," he said, adding that if the labor market continues to weaken, he would push for cuts again.
The hawkish mood in markets was amplified on Wednesday, when Chair Jerome Powell spent most of his press conference on inflation risks from the Iran war and said relatively little about the deteriorating job market. Powell also stressed deep uncertainty about how the war plays out, leaving the policy path open.
Employers shed 92,000 jobs in February, and if the next jobs report looks similar, that would be four negative reports out of five. Citi analysts said on Friday they expect the familiar pattern of spring and summer job market weakness to repeat this year -- which would push unemployment higher and force the Fed toward cutting, not hiking.
Bank of America's case for hikes would require three conditions to align at once: unemployment holding below 4.5%, core inflation climbing at an annualized rate above 3.2%, and Powell remaining as chair past his expected May 15 end date. That combination is most plausible if oil prices stay elevated, but not catastrophically so. A moderate, sustained shock in oil prices would push inflation higher without crushing demand or breaking the job market. A severe shock would flip the calculus toward recession risk entirely.
Core prices are rising at roughly 3% year-over-year, but the underlying details in February were softer than the headline numbers suggested, meaning Fed isn't near the threshold Bank of America describes.
Three weeks ago, the only question was how many cuts the Fed would deliver. This week, the question became whether rates might actually go up. Waller, Bowman and Miran, all appointees of President Donald Trump, answered that on Friday. Not yet -- and by their telling, probably not at all.
Write to Nicole Goodkind at nicole.goodkind@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 20, 2026 13:22 ET (17:22 GMT)
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