IMF Predicts One US Interest Rate Cut in 2026 Amidst Tariff and Immigration Policy Concerns

The International Monetary Fund (IMF) forecasts a modest easing of U.S. Monetary policy in 2026, anticipating one 0.25 percentage point reduction in the Federal Reserve’s base interest rate. This prediction comes alongside an assessment of the economic impacts of the Trump administration’s policies, including tariffs and immigration restrictions.

Economic Outlook and Interest Rate Projections

In its U.S. Economic outlook report released on February 25, 2026, the IMF projected a 2.4% growth rate for the U.S. Economy in 2026, consistent with its previous World Economic Outlook report from last month. The 2025 growth rate was 2.2%.

The IMF expects the U.S. Base interest rate to settle within a range of 3.25-3.50% by the end of 2026. Currently, the rate stands at 3.50-3.75%, suggesting a gradual easing of monetary policy throughout the year. This forecast falls short of the “significant interest rate cut” previously advocated by President Trump.

Inflation Expectations

The IMF anticipates that personal consumption expenditures (PCE) prices, a key metric for the Federal Reserve, will initially rise by 0.5 percentage points in early 2026 due to the impact of the Trump administration’s tariffs. However, this effect is expected to diminish, with PCE inflation falling to the Federal Reserve’s target of 2% by early 2027.

Impact of Trade and Immigration Policies

The IMF’s analysis highlights the negative consequences of the Trump administration’s trade and immigration policies on the U.S. Economy. Regarding tariffs, the IMF stated that they lead to “costs such as distorted distribution of production resources, disruption of global supply chains, and damage to the benefits of global trade,” and warned that “uncertainty surrounding trade policy could lead to a larger-than-expected slowdown in activity.” The IMF recommends that such policies be applied narrowly to minimize negative impacts.

the IMF predicts that stricter border enforcement and expanded deportations will reduce the size of the foreign-born labor force, resulting in slower employment growth, moderate inflationary pressures, and a 0.4% decline in economic activity by 2027.

Fiscal Deficit and Debt

The United States’ general government fiscal deficit is projected to remain at 7-8% of gross domestic product (GDP). General government debt is expected to reach 140% of GDP by 2031.

The IMF noted that the Trump administration’s tax cuts for tips, overtime pay, and the expansion of the child tax credit will increase household income. However, these benefits are expected to diminish for the bottom 50% of the income distribution after 2029, when certain progressive income tax provisions expire.