AI analysis signals massive Fed rate cuts markets aren't ready for

Despite growing splits within the Federal Reserve over where interest rates should go next, economist Anna Wong says the discord won’t stick.

Drawing on an analysis of 17,500 earnings calls from S&P 500 companies over the past decade, Wong and her colleagues at Bloomberg used artificial intelligence to identify key macroeconomic trends embedded in corporate commentary.

Those transcripts appear to answer a central question for policymakers and investors alike: Will inflation reaccelerate next year? According to the analysis, the answer is no.

“Together with our view that payrolls will be weak in the first half of 2026, we see a case for 100 basis points of Fed rate cuts in the year ahead,” Wong wrote alongside fellow Bloomberg economist Alex Tanzi and quant analyst Joshua Danial.

The unexpectedly dovish outlook stands in contrast to recent reporting by The Wall Street Journal’s Nick Timiraos, who said policymakers were divided over rate cuts at the Fed’s December meeting — a split that could complicate the path toward further easing.

Economist Mohamed El-Erian has also pointed to “conflicting pressures” on the Fed’s dual mandate of price stability and maximum employment as a source of the discord.

If Wong’s analysis proves correct, markets appear underprepared. Current pricing doesn’t reflect the scale of rate cuts Bloomberg Economics believes may be coming.

A forecast with major implications

Futures markets are currently pricing in two rate cuts next year, with a chance of a third, according to the CME Group’s FedWatch Tool.

While expectations will inevitably shift with incoming data, investors aren’t positioned for the more aggressive rate-cut scenario outlined by Bloomberg Economics.

Such an outcome would carry significant market implications, including further downside for bond yields and potential upside for stocks and credit — moves that aren’t yet fully reflected in asset prices.

Another major factor is the approaching end of Jerome Powell’s term as chair of the central bank, as well as President Donald Trump’s stated preference for a successor more aligned with his push for aggressive rate cuts.

Asked recently about his target for interest rates next year, Trump said he would like to see them at “1%, and maybe lower than that.”

The Fed’s next scheduled policy meeting is Jan. 27–28, followed by a March meeting that will include updated economic projections for GDP, unemployment, inflation, and interest rates.

Futures markets currently assign a 24% probability to a rate cut in January, rising to roughly 50% by March.