Why the OECD Sees 3 Possible Fed Rate Cuts as U.S. Growth Slows

As the U.S. economy decelerates, the OECD believes there is room for up to three additional rate cuts from the Federal Reserve—assuming inflation eases and the labor market weakens. Economic growth, which was roughly 2.8% in 2024, is forecasted to fall to about 1.8% in 2025 and then further down to 1.5% in 2026, the organization says.

Even though inflation remains above the Fed’s 2% target, conditions suggest the central bank can progressively loosen monetary policy. The OECD projects that the Fed’s policy rate may drop to somewhere between 3.25% and 3.50% by spring 2026.

While all G7 economies are facing mounting headwinds, the OECD expects the U.S. to perform better than most, with the UK being the next strongest at around 1.4% growth. Key threats to this scenario include sustained inflationary pressure, trade disputes, and a cooling labor market. Tariff increases and external demand weakness are seen as risks that will weigh on U.S. investment and consumer spending in coming quarters.

In this environment, financial markets are likely to focus closely on incoming inflation and employment data. If inflation stubbornly remains above target or if job growth holds up strongly, the rate cuts may be delayed or fewer than projected. But if signs of labor market softness and easing price pressures become more evident, the Fed may move more aggressively to reduce borrowing costs, supporting consumers and businesses facing tighter financial conditions.