Important points
- BlackRock strategists say the labor market has cooled but not collapsed, favoring a moratorium or very limited cuts rather than aggressive easing next year.
- Additional cuts would only be made if the labor market deteriorates sharply, which they argue is not the base case.
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Barring a sharp deterioration in the labor market, the Federal Reserve is expected to make limited interest rate cuts in 2026, according to BlackRock senior strategists Amanda Lynam and Dominic Bligh.
Their outlook reflects recent U.S. labor market data that shows some gradual softening but no sharp decline.
The unemployment rate rose to 4.6% in November, the highest level since 2021, but analysts said some of the rise was due to higher labor participation rates and government job losses rather than a fundamental deterioration in working conditions.
From a policy perspective, the Fed continues to view labor risks as balanced, according to BlackRock strategists. They said recent data reflects the downside concerns raised by Powell, but does not suggest a major collapse in the employment situation.
With interest rates already cut by 175 basis points from September 2024 and policy rates moving closer to neutrality, BlackRock sees limited scope for aggressive easing in 2026. Further rate cuts depend on a sharp decline in the labor market, which the company does not expect.
