Central Banks' 2026 Rate Cut Expectations Show Divergent Policy Paths

Market pricing reveals significant divergence in central bank rate expectations through 2026, with the Federal Reserve leading anticipated easing at 113 basis points cumulative cuts. Current year-end expectations show Fed cuts of 44 bps despite slightly hawkish repricing this week, indicating persistent disagreement with FOMC projections. The Bank of England expects 40 bps of cuts by 2026, while the RBA and RBNZ anticipate 52 bps and 70 bps respectively. Notably, the ECB and SNB show minimal easing expectations with only 10 bps and 8 bps through 2026. The Bank of Japan remains the outlier, with markets pricing 53 bps of rate hikes by 2026. This divergence suggests varying economic pressures across regions, with implications for major currency pairs. USD pairs may face headwinds as aggressive Fed easing expectations persist, while JPY could strengthen on BOJ tightening prospects.