A growing number of economists anticipate a downturn in U.S. loan interest rates by mid-2026, driven by cooling inflation and potential Federal Reserve easing. This expectation is already influencing fixed-income and real estate markets.
- 10-year U.S. Treasury yield projected to fall to 3.0%–3.5% by late 2026
- Federal Reserve rate cuts expected to begin in late 2025, with cumulative reductions of 125–175 basis points by 2026
- The iShares TIPS Bond ETF (TIP) and iShares U.S. Treasury Bond ETF (GOVT) have seen inflows as investors prepare for lower yields
- Mortgage-backed securities (MUB) and long-duration bond funds are outperforming short-duration peers in 2025
- The S&P 500 (SPY) has shown resilience in rate-sensitive sectors, including real estate and consumer discretionary, ahead of anticipated easing
- Investors are adjusting duration exposure, with long-duration bond ETFs (e.g., TLT) up 6.2% year-to-date as of December 2025
Market participants are increasingly pricing in a series of Federal Reserve rate cuts starting in late 2025, with full normalization expected by 2026. The 10-year U.S. Treasury yield, currently trading near 4.3%, is seen declining to a range of 3.0% to 3.5% by the second half of 2026, according to consensus forecasts. This shift would mark a significant reversal from recent highs above 5% in 2023.
The analysis is based on publicly available economic data, market indicators, and consensus forecasts. No proprietary sources or third-party data providers are referenced.