BlackRock strategists expect some rate cuts in 2026 unless the labor market cracks.
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According to BlackRock strategists, the labor market is slowing but not breaking, which favors a pause or very limited cutbacks rather than a drastic easing next year. Further cuts will only come if the labor market deteriorates significantly, which is not their basis, he said.
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BlackRock senior strategists Amanda Lynam and Dominic Bly said the Federal Reserve is expected to offer limited rate cuts in 2026 unless there is a significant deterioration in the labor market.
Their outlook reflects the latest U.S. labor market data, which suggests a modest softening but no major recession.
Although the unemployment rate rose to 4.6% in November, the highest since 2021, analysts said part of the increase was due to higher labor force participation and government job losses, not a fundamental weakness in the labor force.
From a policy perspective, BlackRock strategists say the Fed continues to view the workforce as balanced. The latest data echoes some of the negative concerns raised by Chairman Jerome Powell, but does not indicate a major deterioration in employment conditions, he said.
In the year With 175 basis points of cuts from September 2024 and policy rates moving towards neutral, BlackRock sees some room for aggressive easing in 2026. Further cuts depend on unexpected labor market downturns.
