Guggenheim CIO Predicts Fed Rate Cuts Through 2026 Amid Market Volatility

This analysis is based on the Yahoo Finance interview [1] with Anne Walsh, Guggenheim Partners CIO, published on November 13, 2025, where she outlined expectations for Federal Reserve rate cuts extending into 2026.

Anne Walsh’s analysis reveals a complex economic landscape characterized by what she terms a “bifurcated economy” [1]. This two-speed recovery features stark contrasts: lower-income consumers and small businesses experiencing recession-like conditions while wealthier individuals and larger corporations maintain resilience [1]. Walsh cites evidence from the Fed Beige Book showing economic conditions that are “sluggish” and “fraying around the edges” [1], providing fundamental support for her rate cut expectations.

The market response to Walsh’s comments and broader Fed uncertainty was notably severe on November 13, 2025. Major indices experienced significant declines: S&P 500 fell 1.30% to 6,737.49, NASDAQ dropped 1.69% to 22,870.36, Dow Jones declined 1.49% to 47,457.22, and Russell 2000 led losses with a 2.40% drop to 2,382.98 [0]. This broad-based weakness reflects growing investor anxiety about Fed policy direction.

A critical divergence has emerged between Walsh’s bullish rate cut outlook and market pricing. While Walsh confidently predicts December rate cuts with continued easing through 2026 [1], CME FedWatch data shows December rate cut probabilities at just 49.4-52% [3][4]. This represents a dramatic deterioration from 95% probability a month ago and 65% just a week ago [3].

The shift in market expectations was triggered by Fed Chair Jerome Powell’s hawkish comments on October 29, which emphasized internal divisions and caution on further easing amid persistent inflation [2]. Core PCE inflation remains at 2.7% year-over-year, above the Fed’s 2% target [2], creating tension between Walsh’s rate cut thesis and inflation realities.

November 13 sector performance reveals clear risk-off positioning patterns. Defensive sectors outperformed with Consumer Defensive gaining 0.87%, Basic Materials up 0.08%, and Healthcare adding 0.06% [0]. Conversely, cyclical and rate-sensitive sectors suffered significant losses: Utilities declined 3.11%, Consumer Cyclical fell 2.87%, Real Estate dropped 2.35%, Financial Services lost 1.48%, and Technology declined 1.57% [0].

This sector rotation suggests investors are positioning for potential economic weakness rather than the rate cuts Walsh anticipates, indicating a fundamental disagreement about near-term economic trajectory.

Walsh highlighted additional complexity from the upcoming Fed chair appointment process, suggesting it could lead to a “more dovish Fed composition” [1]. This political dimension adds another layer of uncertainty to monetary policy outlook, potentially influencing the timing and magnitude of rate adjustments.

Despite broader market concerns, Walsh maintains bullish positions on specific sectors, particularly AI-driven technology [1]. This selective optimism contrasts with the defensive positioning evident in market performance, suggesting opportunities for investors who can correctly anticipate the Fed’s policy path.

The current situation presents unusual circumstances where expert analysis from a major institutional investor ($357 billion in assets under management) [1] diverges significantly from market pricing. This disconnect historically creates opportunities for significant volatility around key policy decisions, particularly the December FOMC meeting.

1. Sticky Inflation
   : Core PCE at 2.7% YoY remains elevated [2], potentially constraining Fed flexibility and challenging Walsh’s rate cut expectations

2. Policy Implementation Uncertainty
   : Walsh noted uncertainty around Trump administration policies and their implementation timeline [1], which could affect economic conditions and Fed decision-making

3. Economic Divergence Complexity
   : The “bifurcated economy” may complicate Fed decision-making [1], as policymakers balance disparate conditions across consumer segments and business sizes

1. Fed Meeting Communications
   : Changes in FOMC language and voting patterns will provide clues about policy direction

2. Inflation Data Trajectory
   : Core PCE trends and wage growth metrics will influence Fed flexibility

3. Labor Market Indicators
   : Unemployment claims, job growth, and wage pressures will be critical factors in Fed calculations

4. Beige Book Regional Details
   : Specific sector weaknesses and regional disparities will provide deeper insights into economic conditions

The divergence between Walsh’s expectations and market pricing creates potential opportunities:

1. Rate-Sensitive Assets
   : If Walsh’s rate cut thesis materializes, financials, real estate, and utilities could benefit significantly

2. Quality Defensive Positions
   : If economic conditions weaken more than expected, consumer defensive and healthcare sectors may outperform

3. Technology Growth
   : Walsh’s continued bullishness on AI-driven tech [1] suggests selective opportunities in innovation-focused companies

The current market environment presents a complex interplay between expert expectations and market pricing. Anne Walsh’s forecast of December rate cuts with continued easing through 2026 [1] stands in sharp contrast to market probabilities of approximately 50% [3][4]. This divergence is occurring against a backdrop of economic bifurcation, sticky inflation at 2.7% [2], and significant market volatility with major indices down 1.3-2.4% on November 13 [0].

The Fed’s decision-making process is complicated by labor market concerns that drove the October rate cut [1], internal divisions highlighted by Powell’s hawkish stance [2], and upcoming leadership transitions. Investors face a critical juncture where positioning for either rate cuts or economic weakness could yield significantly different outcomes, making the December FOMC meeting a pivotal event for market direction.