Markets: The Fed’s rate-cutting cycle has come to an end

August 27, 2026

Economic Research Department

Sergio Olarte | Gustavo Acero

 

 

This analysis, prepared by our Economic Research Department, examines how persistent inflation risks, fiscal pressures in the United States, and shifting monetary policy expectations have reduced the likelihood of further rate cuts by the Fed.

 

Key highlights from the report:

 

  • The market has moved away from expectations of Fed rate cuts, pricing in a “higher-for-longer” interest rate scenario amid persistent inflation risks and a more restrictive monetary policy bias.
  • Post-pandemic inflation has changed the Fed’s reaction function, with inflation readings remaining persistently above the 2% target and volatility exceeding pre-pandemic levels.
  • The Treasury curve and term premium reinforce this regime shift, reflecting higher compensation required for duration, fiscal risks, and a lower probability of returning to lower interest rates.
  • The 10-year UST and TIPS auctions confirm higher nominal and real financing costs, with investors demanding yields significantly above those seen in the decade prior to the pandemic.
  • Latin America and emerging markets continue to deliver exceptional performance, experiencing one of their strongest periods in recent years. Sovereign spreads are at levels not seen in more than 15 years, currencies have shown a strong recovery against the U.S. dollar, and corporate credit upgrades toward investment grade have reached their highest levels in nearly a decade.

 

Read the full report here: 

Markets: The Fed’s rate-cutting cycle has come to an end. The higher-for-longer interest rate outlook is gaining traction.