The Rate Cutting Cycle is Over
Benjamin Cowen argues that the Federal Reserve's rate-cutting cycle is effectively over and that a rate hike could occur later in 2026, despite mixed labor-market signals. He points to persistent inflation risks, rising long-term yields, and rate hikes by several foreign central banks, while concluding that a possible 10% to 20% stock-market correction would likely not signal a recession or end the broader market cycle.
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Benjamin Cowen notes that the last Federal Reserve rate cut occurred in 2025 and argues that the rate-cutting cycle may have ended, although he acknowledges that the labor market remains a source of disagreement.
The latest employment data shows a loss of 23,000 U.S. jobs, but the employment level remains 2% higher year over year, with 316,000 jobs added over the past year.
The unemployment rate has declined from 4.5% in November 2025 to 4.1%, but Cowen says the labor-force participation rate has also fallen, partly explaining why unemployment has not risen.
Initial jobless claims remain relatively low, and Cowen says they recently reached their lowest level in decades, suggesting that the labor market is not showing broad distress.
Cowen expects a token 25-basis-point rate hike could occur in 2026, with September or December appearing more likely than other months.
Benjamin Cowen argues that oil's recent rebound could create a lagged effect on consumer prices, meaning inflation may not yet be fully under control.
Fed Cycle Premise
Benjamin Cowen introduces his view that the Federal Reserve's rate-cutting cycle has ended, thanks viewers, and promotes his Balance of Risks report and upcoming conference.
Labor Market Contradictions
Cowen weighs weak payroll growth against falling unemployment, declining labor-force participation, normalized layoffs, and job openings that do not yet indicate severe economic distress.
Possible Fed Rate Hike
Despite mixed employment signals, Cowen argues the Federal Reserve could deliver a token 25-basis-point hike, potentially in September or December 2026.
Inflation Risk Returns
Cowen says rising oil prices could slow disinflation and leave inflation incompletely conquered, creating a reason for the Fed to consider tightening rather than cutting.
Bond Vigilante Pressure
Rising long-term Treasury yields signal renewed inflation concerns, while weak forward guidance could cause bond investors to push the 10-year and 30-year yields higher.
Global Hiking Cycle
Cowen points to rate hikes in Europe, Australia, Japan, and New Zealand as evidence that many central banks have already reversed from easing and that the United States may follow.
1990s Rate-Hike Lesson
Using the 1990s as a precedent, Cowen argues that a rate hike can produce only a temporary correction while signaling an economy strong enough to support continued stock-market gains.
Correction Without Recession
Cowen expects a possible 10% to 20% stock-market decline in late Q3 or early Q4, but views it as a non-recessionary cycle correction and potential investment opportunity.
GDP-Weighted Tightening
A rising GDP-weighted global policy-rate measure reinforces Cowen's conclusion that the hiking cycle has begun, though he says any resulting correction should not end the broader market cycle.
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