US interest rates: the Fed’s dot plot could prove unreliable, and the risk of this asset being wiped out in 2026 is real. Another could instead skyrocket.
Ultimately, if it decides to accommodate US President Donald Trump’s interest-rate preferences, the Fed—still chaired by Jerome Powell for a limited time—will risk severely undermining a specific asset, while at the same time driving sharply higher the prices of another investment instrument.
This dual scenario appears increasingly plausible given the looming leadership transition at the US central bank. Wall Street and global markets are holding their breath as they await the name of the next Federal Reserve chair, which Trump is expected to announce shortly. The former president is widely expected to appoint a successor to Jerome Powell who is overtly dovish and therefore inclined toward rate cuts, with the aim of delivering additional stimulus to the US economy.
However, rate cuts—generally welcomed by households and now a cornerstone of populist economic agendas—do not affect all asset classes in the same way. In some cases, their impact is decidedly negative, while in others it is strongly supportive. On Wall Street, investors are already debating which asset could suffer materially in 2026 as a result of potentially renewed and extended US rate cuts, and which could instead benefit substantially from the same dynamic.
The Fed will be forced into deep rate cuts, boosting gold and destroying the dollar
This dual scenario was outlined by Felix Vezina-Poirier, chief strategist at Daily Insights, the global cross-asset strategy arm of BCA Research, in the article “Opinion: The Fed will be forced into deep rate cuts in 2026 — boosting gold and breaking the dollar.”
According to Vezina-Poirier, the likelihood of further US rate cuts is already high, for reasons that are becoming increasingly evident: “slowing growth and employment,” alongside inflation which, while still above the Fed’s target, is “largely contained.”
Labour market the Achilles’ heel of the US economy, Fed forced into sharp rate cuts
The outcome, as summarised in the headline, is that “the Fed will be forced to deliver deep rate cuts in 2026, sending gold prices soaring and severely weakening the US dollar.”
The Daily Insights strategist argues more broadly that “in 2026, the Federal Reserve is likely to cut rates more aggressively than both policymakers and financial markets currently anticipate.”
The key driver is the ongoing deterioration of the US labour market, which continues to show signs of softening.
Additional warning signals are emerging from wage growth, as highlighted by the latest Non-Farm Payrolls data for November.
Overall, while the figures still showed positive headline job creation, they confirmed that employment gains were concentrated in a narrow set of sectors—primarily “education and health services”—as opposed to “more cyclical sectors, where job growth was minimal.”
Crucially, the unemployment rate increased from 4.4% to 4.6%, while the U-6 unemployment rate, widely regarded as a more comprehensive gauge of labour market slack, jumped from 8% to 8.7%.
Markets challenge Fed dot plot, more numerous rate cuts in 2026
According to Vezina-Poirier, the Fed may therefore be forced to respond more forcefully to protect employment—certainly more aggressively than indicated by the latest dot plot, released alongside the Fed’s final policy decision of 2025 on December 10, when Powell and his colleagues cut rates from the 3.75%–4.00% range to the new target range of 3.50%–3.75%.
At that meeting, the Fed also published its updated dot plot, which largely mirrored the previous one, continuing to signal that the median FOMC projection points to just one rate cut in 2026 and another in 2027, before the federal funds rate conver avoids its longer-run neutral level, estimated at around 3%.
However, Vezina-Poirier noted that the dot plot rests on two key assumptions embedded in the Fed’s projections: stronger economic growth and a lower unemployment rate in 2026. While these outcomes are “possible,” they “do not represent the most likely scenario,” in his view, given that rate cuts are likely to be more numerous.
As a result, investors should “closely monitor how the US dollar reacts to negative macroeconomic news related to growth.”
At the same time, attention should remain on one of the strongest-performing assets of 2025, namely, gold—an asset that has already benefited significantly from dollar weakness.
Still bearish view on the US dollar after worst annual loss since 2017. Survey results
The inverse correlation between gold prices and the US dollar is well established, and market consensus remains bearish on the greenback, as reflected in the latest Reuters surveys. These polls point to a negative bias on the US currency, driven by persistent concerns over Federal Reserve independence and the direction of future policy decisions.
According to surveyed analysts, the prospect of lower interest rates supports further dollar weakness, following a decline of nearly 10% against major currencies in 2025, as measured by the DXY index—its worst annual performance since 2017.
Dollar sell-offs were fuelled by risks linked to Trump-era tariffs, which remain at their highest levels since the Great Depression, as well as by labour market weakness and the prospect of several trillion dollars in additional US debt issuance over the coming years.
According to the Reuters poll conducted between January 5 and 7, the dollar’s bearish trajectory is expected to persist into 2026, largely due to Federal Reserve policy.
Median forecasts—virtually unchanged from December—see the euro-USD exchange rate rising to $1.19 by mid-2026 and reaching $1.20 by year-end.
Only 17% of respondents—12 of the 71 analysts surveyed—expect the euro to weaken from current levels by the end of 2026.
US dollar under pressure from Trump’s continued challenge to Fed independence
Among the dollar bears is Vincent Reinhart, chief economist at BNY Investments and former Fed official, who identified Trump’s sustained challenge to the Federal Reserve’s independence as a significant risk factor for the US dollar:
“The White House wants to exert control over monetary policy and directly influence interest rates—and that direction clearly points toward additional easing.”
Reinhart added that, in the near term, the dollar is likely to trade sideways, with limited policy changes until a new Fed chair is appointed. However, “over the medium to long term, there are multiple reasons why the dollar could depreciate. The Fed is easing more aggressively than other central banks, the US is perceived as a less reliable safe haven, and the growth differential between the US and its major trading partners is narrowing.”
Meanwhile, interest-rate futures are pricing in at least two Fed rate cuts this year—more than suggested by the dot plot, as Felix Vezina-Poirier noted—with scope for further easing if monetary policy becomes increasingly politicised.
Several analysts are highlighting rising political risk for the dollar, citing not only the post-Powell transition but also President Trump’s efforts to remove Fed Governor Lisa Cook.
“If Trump were to remove Cook, we would likely see increased capital outflows from US assets, particularly fixed income and AI-related investments,” said Erik Nelson, head of G10 FX strategy at Wells Fargo, ranked the most accurate forecaster of major currencies in last year’s Reuters polls, according to LSEG StarMine.
“There would also be a risk of additional board members being removed, which would intensify perceived pressure on the Fed,” Nelson added, noting that such developments would likely accelerate the dollar’s decline and amplify its scale.
Pressure on the US dollar will boost gold?
A more accommodative Fed stance, by weakening the dollar, could further support gold prices, which surged 64.4% in spot terms in 2025—one of the strongest annual performances since 1979.
UniCredit’s research division, in its Compass 2026 report, flagged upside risks, noting that “as markets recalibrate expectations around monetary policy and global risk sentiment, gold remains well supported.”
“With long-term structural drivers still firmly in place, we maintain a constructive outlook. We expect gold to trade in a range of $4,100 to $4,400 per ounce in 2026, as the global investment environment continues to favour safe-haven assets.”
Gold, as Vezina-Poirier, chief strategist at Daily Insights argued, could perform even more strongly if the Fed delivers deeper rate cuts than currently anticipated. More aggressive forecasts are already emerging, such as JPMorgan’s call for gold to reach as high as $5,055 in the fourth quarter of 2026.
Although prices have pulled back modestly from the recent peak of $4,549 due to profit-taking, the underlying trend remains firmly bullish. Investors are closely watching resistance at $4,450; a decisive break above this level could open the way toward the psychological $4,600 threshold. Morgan Stanley analysts have already set a $4,800 target for 2026. Any acceleration in US rate cuts would likely prompt further upward revisions to these forecasts.
Original article published on Money.it Italy 2026-01-09 08:24:00. Original title: Tassi USA, la Fed rischia di distruggere questo asset. Un altro potrebbe invece volare nel 2026
