Recently, discussions about the Federal Reserve's policy direction in 2026 have caused a stir on Wall Street. How deep are the disagreements? Some say continue cutting rates, others advocate holding steady, and some even predict possible rate hikes. Behind this "opinion battle," reflects a profound divergence in market outlooks on the economy.

New York Federal Reserve President John Williams recently stated that monetary policy is already in a "very favorable position," implying there's no need to rush into further easing. BlackRock strategists are more straightforward—they expect the Fed's rate cuts next year to be very limited.

The data is clear: the Fed has already cut rates consecutively, with a total reduction of 175 basis points. At this pace, we're not far from the neutral rate. Previously, the market expected two rate cuts by 2026, but now that outlook seems a bit optimistic.

The issue is, the forecasts from different investment banks vary greatly. Goldman Sachs and Morgan Stanley expect about a 50 basis point cut, bringing rates to 3.00%-3.25%. Citigroup is more aggressive, predicting a 75 basis point cut. Conversely, HSBC and Standard Chartered say they won't cut rates at all, maintaining them at 3.50%-3.75%. JPMorgan Chase and Deutsche Bank take a middle ground, each forecasting a 25 basis point cut.

This divergence reflects a reality: unless the labor market deteriorates sharply, the Fed's room for further easing is really limited. The market should be mentally prepared— the easing cycle in 2026 may not be as generous as previously thought.