BlackRock strategist Amanda Lynam and Dominique Bly pointed out in their latest report that the market may be overly optimistic about the Federal Reserve's monetary policy pricing, expecting only a "slight rate cut" in 2026, with a lower magnitude and frequency than market expectations.

The two strategists analyzed that since the start of this tightening cycle, the Federal Reserve has cut interest rates by a total of 175 basis points. The policy rate may be approaching the "neutral rate" zone, which neither stimulates nor restrains economic growth. The need and room for further rate cuts will narrow. BlackRock's team believes that unless the economy shows a significant downturn in the future, especially a "sharp deterioration" in the labor market, there is insufficient reason for a substantial rate cut in 2026.

Regarding market pricing, LSEG data shows that the current interest rate market has largely priced in two rate cuts by the Federal Reserve in 2026. There is a divergence between the market and BlackRock's view: the market leans toward "continued rate cuts," while BlackRock emphasizes that "the room for rate cuts is limited," and further easing conditions would be triggered only by a significant weakening of the labor market.

The path of interest rate policy depends on economic data. If inflation falls less than expected and economic growth remains resilient, the Fed may keep rates high for a longer period; if the labor market cools rapidly, driving down consumption and inflation, the pace of rate cuts could accelerate. BlackRock warns that, in a context approaching the neutral rate, the probability of monetary policy shifting from "accommodative" to "neutral leaning tight" is increasing, and investors should be cautious about the market pricing in overly optimistic rate cut expectations.