Trump’s impossible bet on rate cuts and political survival

Financial markets are pricing in two to three US interest rate cuts in 2026 despite Federal Reserve guidance pointing to just one reduction.

A widening disconnect has emerged between investors and policymakers as traders expect easing to begin in the first half of the year.

Prediction market Polymarket shows only a 12% chance of a January rate cut, but probabilities rise sharply to 81% by April and 94% by June.

CME FedWatch data mirrors this outlook, with futures implying at least two to three cuts by the end of 2026.

Federal Reserve officials have signalled caution, warning that inflation and labour market conditions do not yet justify rapid easing.

Some modest further adjustments to the funds rate would likely be appropriate later in the year.

Philadelphia Fed President Anna Paulson said.

The December FOMC meeting exposed deep divisions, with a 9–3 vote on a 25 basis point cut and a dot plot split between zero and multiple cuts.

President Donald Trump’s public pressure for lower rates is seen by markets as a key factor behind expectations of looser policy.

Investors believe Trump may influence the Fed through future appointments as Chair Jerome Powell’s term ends in 2026.

High inflation is undermining Trump’s political leverage, with rising food and living costs weighing on public approval.

Polling shows growing voter dissatisfaction over affordability, threatening Republican prospects ahead of the midterm elections.