Every December, Wall Street writes down what the Federal Reserve will do next year. The December 24, 2025 Journal recorded the answer for 2026: several interest rate cuts, widely expected. Eight months of reality have now graded that forecast. The grade is not kind.
The fed-funds target range in that December 24 paper was 3.50% to 3.75%. In the August 28, 2026 paper it was 3.50% to 3.75%. Identical. The cuts never came.
The prediction, with dates
This was not a fringe view. The December 31, 2025 paper reported futures markets pricing a coin flip on at least two more quarter-point cuts by the end of 2026, per CME Group.
The Fed itself leaned the same way. Its December median projection called for one 2026 cut, as the March 10 paper later noted. Governor Michelle Bowman penciled in three, per the March 18 paper.
Goldman Sachs built on the premise. Its 2026 stock outlook was friendly partly because of those coming cuts, per the December 31 paper. Hold that thought.
The slow collapse
The first crack is dated January 23. Fresh data, that paper said, had further diminished hopes for aggressive cuts. Third-quarter GDP had printed at a 4.4% annual rate. Weekly jobless claims sat at 200,000. It is hard to cut rates for an economy that refuses to need it.
By the February 12 paper, January payrolls had come in at 130,000, the strongest in more than a year. The Fed had already held steady in late January, after three straight cuts to close 2025. From there, the market’s own forecast rolled downhill, step by step.
| Paper date | What markets priced for 2026 cuts |
|---|---|
| Dec. 31, 2025 | A coin flip on at least two cuts |
| Mar. 10 | One cut most likely; 18% odds of none |
| Mar. 14 | 38% chance of no cuts at all |
| Apr. 1 | Two-cut odds under 5%, down from nearly 80% a month earlier |
| May 29 | Polymarket: 66% odds of zero cuts |
| Jun. 20 | Polymarket: 80% odds of zero |
| Jul. 30 | Polymarket: 89% odds of zero |
| Aug. 26 | Polymarket: 87% odds of zero |
The war with Iran did much of that damage. Oil shocks push prices up, and central banks do not cut into rising inflation. By the April 1 paper, the two-cut trade was essentially dead.
Then the conversation flipped entirely. In the May 23 paper, Joseph Lavorgna of SMBC Americas argued the Fed might need to raise rates by about a percentage point. His summary: “I don’t think anybody credible can possibly say the Fed should be cutting rates.”
The Fed’s June projections, detailed in the July 2 paper, showed nine of 18 officials expecting higher rates by year-end. Eight favored holding. Exactly one still penciled in a cut. The July 13 survey of economists expected a hold through December, with only 15% calling a hike probable.
Even that hold got wobbly. After a weak July jobs report, the August 8 paper had futures split 58% hold against 42% hike for the next meeting.
The August 28 paper supplied the punchline, datelined Jackson Hole. Boston Fed President Susan Collins said she is open to supporting an increase, possibly within a meeting or two. Her words: “Could be, yes.” Inflation, the paper noted, has run above the Fed’s 2% goal for more than five years.
The bill for waiting
A missing rate cut is not an abstraction. It shows up in loan paperwork.
| Rate | Dec. 24, 2025 paper | Aug. 28, 2026 paper |
|---|---|---|
| Fed-funds target | 3.50%–3.75% | 3.50%–3.75% |
| 30-year fixed mortgage | 6.34% | 6.66% |
| 15-year fixed mortgage | 5.74% | 6.11% |
| 10-year Treasury yield | 4.128% | 4.671% |
Everyone who waited for a cheaper mortgage got a more expensive one. The Treasury figure on the left is the December 30 close, from the December 31 paper. Everything else is straight from the two dated papers above.
Now the fairness section, because a scorecard has to cut both ways. Kansas City Fed President Jeff Schmid and a contingent of hawks projected steady rates through all of 2026, per the March 10 paper. They were right, and they were right early.
The political forecasts fared worse. Treasury Secretary Scott Bessent said in the May 23 paper that nothing is more transient than a supply shock. Kevin Hassett, the NEC director, had said days earlier on Bloomberg Television, quoted in that same May 23 column, that rate cuts were still likely in 2026. Both calls stay technically alive until December. Neither looks healthy.
And Goldman’s stock call? The S&P 500 was up 12.9% for the year in the August 28 paper, with zero cuts delivered. Right answer, wrong reason. The third part of this scorecard has more to say about that.