Analysis: The shrinking job market will force the Federal Reserve to cut interest rates consecutively by 125 basis points to 2.25%

Former Merrill analyst David Rosenberg stated that the U.S. economy will face significant challenges in 2026, with the job market likely to contract sharply, thereby weakening the economy and forcing the Federal Reserve to respond with substantial interest rate cuts. The biggest surprise will be the realization that the labor market is not cooling down, but rather shrinking.

David Rosenberg believes that the U.S. unemployment rate will soon exceed 5% and "is likely to test 6% by the end of the year. The collapse of the labor market and the ensuing recession will force the Federal Reserve to cut rates by 125 basis points to 2.25% before the end of 2026, which equates to five cuts of 25 basis points each."