Expectations of an imminent US interest rate cut are strengthening, with analysts assigning an 85% probability that the US Federal Reserve will deliver a 25-basis-point reduction. Financial markets have largely priced in this optimism, building expectations of strong gains extending into 2026.

However, Seth Freeman of restructuring advisory firm GlassRatner cautioned that emerging signs of consumer stress could materially impact the Federal Reserve’s policy path. Freeman pointed to weakening consumer confidence and the bankruptcy filing of a major US home improvement retail chain as indicators that household spending may be under mounting pressure.

While retail trends have softened in recent months, US equity markets have so far remained resilient. Investors appear to be focusing on the prospect of monetary easing rather than the deterioration in consumer sentiment. This divergence between economic signals and market optimism increases the risk of valuation disconnects if demand weakens further.

Freeman noted that sustained weakness in consumer confidence could force policymakers to reconsider the depth and timing of rate cuts beyond the initial 25-basis-point move. The Federal Reserve will be closely monitoring consumption trends, labour market stability, and financial conditions as it charts its policy course for 2026.

For now, markets continue to favour a soft-landing scenario supported by easing monetary policy, despite growing evidence of strain in the underlying consumer economy.