Will the Federal Reserve cut rates by 75bp or more (cumulative) by December 31, 2026?

The Fed cut 100bp in late 2024 (from 5.50% to 4.50%) then paused for the entirety of 2025 — a 12+ month hold at 4.50%. This prolonged pause signals the Fed believes rates are near-appropriate or inflation risks remain. For 75bp cumulative cuts in 2026, the Fed needs to cut at 3 of the ~7 remaining FOMC meetings (Mar-Dec). While this is mechanically feasible, the year-long pause suggests the bar for resuming cuts is high. The base case is 1-2 cuts; 3+ requires either a clear inflation victory or meaningful economic softening. The 'at any point' resolution language means no path-dependency concern, but rate reversal mid-year is extremely unlikely. Edge case: a mid-2026 recession could accelerate cuts to reach 75bp by year-end.

The dominant signal is the full-year pause throughout 2025. The Fed cut 100bp in Sep-Dec 2024 then stopped entirely, suggesting inflation remains above target and the labor market is resilient enough to forestall further easing. For 75bp in the remaining ~10.5 months of 2026, the economy would need to weaken meaningfully OR inflation would need to sustainably reach 2%. The prolonged pause argues against aggressive easing absent a clear catalyst. Historical parallel: after the 2019 mid-cycle adjustment (75bp cuts Jul-Oct), the Fed paused for months before COVID forced action. Without an exogenous shock, gradual easing of 25-50bp is more likely than 75bp+. The prediction context correctly notes this is fundamentally a Fed policy question where the committee's PayPal analysis provides limited insight.

The year-long hold at 4.50% is the key fact. After cutting 100bp in late 2024, the Fed judged that further easing was unwarranted throughout 2025 despite market expectations for continued cuts. This recalibration suggests the neutral rate may be higher than previously estimated, making 75bp of additional cuts (to 3.75%) a significant move. For resolution, need 3 standard 25bp cuts across 7 remaining meetings. Catalysts that could drive this: unemployment rising above 4.5%, PCE inflation sustainably at or below 2%, or financial stress events. The 'at any point' clause means even a brief touch of 3.75% resolves YES, but the Fed rarely reverses mid-cycle. Base case: 1-2 cuts for 25-50bp. The probability of 3+ cuts is meaningful but below coin-flip.

The Fed held at 4.50% for all of 2025 after the late-2024 100bp cut. This is a strong signal of caution — the Fed clearly doesn't feel urgency to ease further. 75bp cumulative requires 3 cuts across ~7 remaining FOMC meetings, meaning cutting at about 43% of meetings. Market consensus likely expects 1-2 cuts for 2026, making 3+ the above-consensus scenario. However, the Fed has 7 meetings and economic conditions could deteriorate — if unemployment ticks up or a financial stress event occurs, the Fed could front-load cuts. The prediction context notes PayPal's ~$380M interest income is at risk but correctly identifies this as primarily a macro question. I lean slightly below one-third probability: the cautious Fed posture makes 3 cuts possible but not the base case.

The 12+ month pause is the dominant signal. After cutting 100bp in late 2024, the Fed stopped for all of 2025 — this is not a Fed eager to ease. Three cuts in 2026 would require either a clear inflation victory or economic deterioration significant enough to shift the FOMC's bias. Historical base rate: once the Fed pauses for a full year after initial cuts, the subsequent cutting pace tends to be gradual (1-2 per year, not 3+). The tail risk of recession could accelerate cuts, but that's perhaps a 20-25% scenario, and even in a recession scenario, 75bp by year-end requires the recession to start by mid-2026 to allow time for the policy response. The prediction context acknowledges limited committee insight into Fed decision-making.

The 2025 pause tells us the 'easy' cuts are done. Remaining cuts require genuinely new data — either unemployment rising above ~4.5% or PCE sustainably hitting the 2% target. There are enough meetings (7 remaining) for 3 cuts. The probability breaks down as: ~25-30% chance of recession/significant softening triggering 3+ rapid cuts, plus ~5-10% chance of gradual easing reaching 75bp by December if the Fed starts cutting in Q2 and continues quarterly. Combined, roughly one-third. The prediction context's PayPal-specific analysis (interest income sensitivity, management guiding ex-interest) confirms this market tests a real financial impact but doesn't help predict the Fed's behavior.

Fed paused all of 2025 at 4.50% after 100bp of late-2024 cuts. Need 3 more cuts for 75bp cumulative. Long pause signals cautious Fed — 3 cuts in 2026 is above consensus. Possible if economy weakens but not the base case. Each 25bp cut represents $50-75M headwind to PayPal per the analysis, but this is fundamentally a macro call.

Year-long Fed pause at 4.50% is the strongest signal — inflation likely still sticky, labor market holding up. 75bp requires meaningful economic deterioration or clear inflation victory. Historical pattern after extended pauses: gradual resumption, not acceleration. Below 30% probability.

100bp already cut in late 2024, then full 2025 pause. 7 FOMC meetings remain in 2026 — mechanically enough for 3 cuts. The question is whether a catalyst emerges. If labor market softens or inflation convincingly hits 2%, the Fed could resume quarterly cuts starting mid-2026. But the prolonged pause argues against aggressive easing. One-third probability captures the upside scenario without overweighting it.