Deutsche Bank issued a prediction last Wednesday: the Federal Reserve might cut interest rates by another 50 basis points in 2026. At first glance, it sounds reasonable, but upon closer inspection— the economy is still expanding, unemployment remains low, the stock market keeps hitting new highs, inflation is still hovering above 3%, and it's still a fair distance from the central bank’s 2% target. In such an environment, continuing easing? The logic seems to fall apart.

However, to be fair, Deutsche Bank also left a contingency plan. They believe that the upcoming months’ data could provide "rate cut advocates" with more ammunition—despite the threat of tariffs still looming, the actual impact might come slowly and be relatively light. Falling energy prices, slowing rent growth, narrowing wage increases—these factors combined could cool inflation faster than the Fed expects.

More importantly, when it comes to employment, the Fed’s dual mandate, employment data now seems to be a bigger concern. Remember when Powell mentioned that recent employment figures might be overestimated by 60,000? If this "excess" is stripped away, the true state of the labor market might not look as resilient as it appears on the surface.

Putting these clues together, Deutsche Bank outlined their scenario: two rate cuts in 2026—one in March and another in June, each by 25 basis points. Will the market buy into this? Let’s look at the data and see how it unfolds.