In an exclusive interview with Benzinga, John Canavan, lead analyst at Oxford Economics, struck a cautiously optimistic tone on the U.S. economy heading into 2026, but warned that the market’s growing obsession with aggressive rate cuts and tech stock dominance may be ignoring some inconvenient truths.
One More Fed Cut in 2025 — Not Two
While markets are pricing in two additional rate cuts by the Federal Reserve this year, Canavan believes only one is likely to come, possibly at the December FOMC meeting. He expects the Fed funds rate to fall to 3.00%–3.25% by mid-2026, followed by a pause.
“Markets have almost fully priced in a rate cut for October in addition to one for December, but we think that’s too aggressive,” Canavan said. “We still expect inflation to gradually cool, but not enough to justify the pace markets are betting on.”
Speculators now see an 80% chance of back-to-back 25-basis-point rate cuts at the Fed’s October and December meetings, as per CME FedWatch.
Labor Market Holding Better Than Expected
Despite signs of labor market softening, Canavan said the economy is …