BlackRock strategists expect limited rate cuts in 2026 unless labor market cracks

Key Takeaways

According to BlackRock’s strategists, the labor market is cooling but not breaking, which supports a pause or very limited cuts rather than aggressive easing next year.
More cuts would only come if the labor market deteriorates sharply, which they say is not their base case.

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The Federal Reserve is expected to deliver limited rate cuts in 2026 unless there is a sharp deterioration in the labor market, according to BlackRock senior strategists Amanda Lynam and Dominique Bly.

Their outlook reflects recent US labor market data, which point to modest softening but no sharp downturn.

Although the unemployment rate rose to 4.6% in November, the highest since 2021, analysts noted that part of the increase was driven by higher labor force participation and government job losses rather than a fundamental weakening in labor conditions.

From a policy standpoint, the Fed continues to view labor risks as balanced, according to BlackRock’s strategists. Recent data echo some downside concerns flagged by Chair Jerome Powell, but do not signal a major breakdown in employment conditions, they stated.

With 175 basis points of cuts already implemented since September 2024 and policy rates approaching neutral, BlackRock sees limited room for aggressive easing in 2026. Further cuts would depend on a sharp labor market decline, which they do not expect.