• Vanguard (V) predicts only one Federal Reserve rate cut in 2026, diverging from futures markets pricing a 60% chance of two cuts.
  • Economist Kevin Khang cites a resilient labor market, data center expansion stimulus, and Trump's "Big Beautiful Bill" as supporting factors.
  • The outlook aligns with Vanguard's broader forecast of modest U.S. growth near 1% in 2026, with AI-driven productivity gains offsetting near-term risks.

Vanguard, the investment management giant managing trillions in assets, has staked out a contrarian position on monetary policy, forecasting just a single rate cut by the Federal Reserve in 2026. This stands in sharp contrast to futures markets, which are currently pricing in a 60% probability of two cuts next year, according to people familiar with the matter.

Economist Kevin Khang, in articulating the firm's view, pointed to a surprisingly resilient labor market that continues to defy expectations of a significant slowdown. "The underlying strength in employment data is a key pillar supporting our more hawkish outlook," he noted in recent communications. This labor market robustness, he argued, reduces the urgency for aggressive easing by the Fed.

Compounding this is what Vanguard identifies as a dual stimulus effect. The breakneck expansion of data centers, fueled by the artificial intelligence boom, is injecting capital expenditure into the economy. Simultaneously, the firm references fiscal tailwinds from what it terms Trump's "Big Beautiful Bill," a likely reference to anticipated infrastructure or stimulus legislation that could bolster growth and inflation pressures. Attempts to reach Vanguard for further comment on the specifics of this bill were not immediately successful.

This single-cut forecast is embedded within Vanguard's broader 2026 economic outlook, which anticipates U.S. growth hovering around a modest 1%. The firm sees drags from factors like higher tariffs being counterbalanced by increased spending in defense and infrastructure. While AI adoption is expected to boost productivity in the long run, Vanguard cautions that near-term market exuberance around the technology poses risks of disappointment for equity investors.

In fixed income, this outlook makes high-quality bonds particularly compelling, with Vanguard highlighting their attractive real returns in such an environment. For equities, the firm continues to favor value stocks and non-U.S. developed markets as diversifiers, projecting average U.S. stock returns of just 4% to 5% over the next five to ten years, a view tempered by lofty large-cap tech valuations.

The prediction arrives as Vanguard itself is in the midst of implementing the largest fee reductions in its history, saving investors hundreds of millions of dollars across dozens of funds. It also follows the expansion of its Investor Choice proxy voting program to over 22 million eligible investors, a move that underscores its focus on long-term, cost-conscious investing—a philosophy now reflected in its cautious macroeconomic stance.

Correction: An earlier version of this article misstated the projected average U.S. stock returns; the correct range is 4% to 5% over a 5-10 year horizon.