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I Asked ChatGPT What More Fed Rate Cuts Mean for the Economy — Here’s What It Said

January 18, 2026

4 min Read

Written by Vance Cariaga

Edited by Zuri Anderson

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After holding interest rates steady for the first eight months of 2025, the Federal Reserve (Fed) announced three cuts during the final four months of the year totaling 0.75 percentage points.

Those cuts brought the central bank’s key interest rate down to a range of 3.5% to 3.75%, CNBC reported.

What can we expect from the Fed in 2026? You’re likely to see more cuts, though maybe at a slower pace than last year, according to experts

“Investors should expect the Fed to remain on hold in Q1, especially if the economy responds to the tailwinds from fiscal and policy support. The first cut next year may come in Q2,” Dr. Jeffrey Roach, chief economist for LPL Financial, wrote in a Dec. 10 note shared with GOBankingRates.

How will further rate cuts impact the U.S. economy? We asked ChatGPT that question, and here’s what it had to say.

First, the Basics

When asked how Federal Reserve rate cuts affect the economy in general, ChatGPT listed the following key impacts that happen whenever cuts are implemented:

Cheaper borrowing costs: Interest rates on business and personal loans go down, making it less expensive to borrow money.
More consumer spending: Lower interest rates mean consumers tend to spend more (and save less) — especially on big-ticket items.
Increased business investment: When rates go down, companies are more likely to borrow money for expansion, hiring and new projects, which leads to job creation and economic growth.
Stock market growth: Increased consumer spending and business investment tend to push the stock markets higher as more investors switch to equities.
Weaker U.S. dollar: Lower rates make the dollar “less attractive” to foreign investors. While U.S. exports are cheaper, imports are more expensive.
Inflationary pressure: Lower interest rates often lead to excessive spending, which causes prices to rise.
Boosts housing market: Lower mortgage rates can increase homebuying and boost housing prices.

What’s the Impact in 2026?

As ChatGPT noted, the full economic impact of further rate cuts depends on the size of the cuts and when they take place.

Lauren Goodwin, an economist and chief market strategist at New York Life Investments, expects the Fed to slow its pace in 2026 due to factors such as a “resilient” labor market and “still-sticky” inflation.

“We expect only 25 to 50 [basis points] of additional cutting in 2026 — slightly hawkish relative to the market’s pricing of 50bps, which has converged toward our expectations over the past few weeks,” Goodwin wrote in a recent email shared with GBR.

If the Fed does cut rates further another 25 to 50 basis points in 2026, here’s how the effects might play out, according to ChatGPT.

Channel	Expected Effect	Notes and Modifiers
Consumption and borrowing	More affordable consumer credit (credit cards, auto, some short-term loans), small downward pressure on mortgage rates.	Mortgage rates don’t always move in lockstep with Fed cuts (they also depend on longer-term yields). So the boost to housing may be delayed or muted.
Business investment	Easier funding for capex, expansion and inventory building, especially for smaller firms.	Firms will likely respond only if demand stabilizes. In a weak demand environment, rate cuts might not fully translate into new investment.
Housing and real estate	Some stimulus via refinancing, improved affordability, higher housing demand.	The existing backlog of high borrowing rates and supply constraints may slow the response.
Labor market	Slower increases in unemployment, or a more gradual decline in hiring as firms feel less pressure.	In a softening economy, cuts may help prevent sharper layoffs.
Asset prices and financial markets	Further gains in equities, pressure on bond yields (especially short- to medium-term).	Investors may reprice risk, tilt toward equities and corporate credit.
Exchange rates and trade	A somewhat weaker U.S. dollar, making exports more competitive (imports more expensive).	Global interest rate differentials matter — if other central banks are also easing, the relative effect might be modest.