Wilmington Trust's Meghan Shue Expects 3 Fed Rate Cuts in 2026 Amid Economic Experimentation

Meghan Shue’s appearance on CNBC’s Squawk Box on February 3, 2026, delivered a clear message: the Federal Reserve is expected to implement three interest rate cuts throughout 2026 [1]. This forecast represents a more aggressive easing trajectory than most Wall Street firms anticipate, placing Wilmington Trust in a select group of notably dovish investment houses. The total reduction of 75 basis points would bring the Fed funds rate to a range approaching 2.75-3.00%, assuming three 25-basis-point cuts from current levels.

The timing of Shue’s forecast carries particular significance given the immediate market context. Her appearance on Squawk Box occurred during an active trading session where markets were already processing complex signals about economic growth, inflation pressures, and the path of monetary policy [1]. The alignment of her outlook with Citigroup’s projections—both expecting three cuts with a March, July, and September timeline—suggests a coherent analytical framework shared by these institutions that diverges from the broader consensus [3].

The landscape of Fed rate expectations among major financial institutions reveals meaningful divergence in outlook [3][4]:

Firm	Expected Cuts	Target Rate Range	First Cut Timing
Wilmington Trust	3	—	—
Citigroup	3	2.75-3.00%	March, July, September
Goldman Sachs	2	3.00-3.25%	June, September
Morgan Stanley	2	3.00-3.25%	June, September
Bank of America	2	3.00-3.25%	June, July
Wells Fargo	2	3.00-3.25%	March, June
J.P. Morgan	0	3.50-3.75%	None expected
HSBC	0	3.50-3.75%	None expected

This comparison reveals that while the majority consensus (approximately 8 of 14 major brokerages) anticipates two cuts totaling 50 basis points, Wilmington Trust and Citigroup represent a more bullish dovish perspective expecting 75 basis points of easing [3]. Notably, J.P. Morgan and HSBC expect no rate cuts in 2026, reflecting concerns that the robust labor market and persistent inflation risks may delay monetary easing beyond what the consensus expects.

The CME FedWatch tool’s data showing 97.2% probability of a pause in January 2026 further underscores that markets have not fully priced in Shue’s more aggressive three-cut scenario [3]. This positioning gap between Wall Street forecasts and market pricing represents a notable point of divergence that investors must consider when formulating their own outlooks.

The market performance on February 3, 2026, provided immediate context for evaluating the implications of Shue’s outlook [0]. The trading session revealed a pronounced divergence between indices and across sectors:

• S&P 500: -0.64% (moderate decline)
• NASDAQ Composite: -1.40% (significant tech sell-off)
• Dow Jones Industrial Average: +0.14% (modest gains)
• Russell 2000: +0.19% (small-cap resilience)

• Energy: +2.09% (strongest sector)
• Consumer Defensive: +2.04% (defensive positioning)
• Basic Materials: +1.42%
• Consumer Cyclical: -2.43% (weakest sector)
• Technology: -2.02%

The sector rotation pattern observed during Shue’s appearance reveals a nuanced market reaction. While rate cut expectations are generally constructive for risk assets—particularly rate-sensitive segments—the significant rotation away from growth sectors, especially technology, suggests investors were engaged in profit-taking and strategic repositioning [0]. The strength of defensive sectors like consumer staples and energy indicates a portion of market participants are hedging against potential economic uncertainty, even as they anticipate the accommodative policy that Shue envisions.

The divergence between the Dow Jones (up) and the NASDAQ (down significantly) is particularly instructive [0]. This pattern suggests that large-cap, dividend-paying stocks with industrial and financial exposure are being favored over high-growth technology names that had dominated market performance in preceding periods. Such rotation is consistent with Wilmington Trust’s recommendation to diversify away from pure large-cap tech exposure and toward a broader mix of sectors including industrials and non-traditional assets [5].

Wilmington Trust’s 2026 Capital Markets Forecast, titled “Investing in a Period of Economic Experimentation,” provides the intellectual framework underlying Shue’s market views [5]. The report identifies three interconnected “experiments” that will shape investment outcomes:

Tariffs and supply-chain realignment are fundamentally altering corporate margins and competitive dynamics across multiple sectors. As companies navigate the complex terrain of trade policy, the resulting supply-chain restructuring may create both winners and losers among industries previously optimized for global efficiency. This experiment suggests investors should focus on companies positioned to benefit from domestic production and reduced foreign dependence.

The intersection of artificial intelligence and automation with a shrinking workforce represents a structural shift in labor economics. AI-enabled productivity gains may offset demographic challenges, potentially creating a new paradigm for economic growth and corporate profitability. Wilmington Trust’s emphasis on this theme implies a strategic tilt toward companies effectively deploying AI technologies while managing workforce transitions thoughtfully.

Rising debt levels, both governmental and corporate, combined with potential productivity improvements from technology adoption, may have significant implications for interest rate trajectories and currency valuations. This experiment examines how the intersection of fiscal policy, monetary accommodation, and productivity gains will ultimately play out in financial markets.

Shue’s Squawk Box discussion of these themes underscores the strategic importance of positioning portfolios to navigate this period of economic experimentation [1][5]. The recommendation to diversify into non-traditional asset classes and focus on industries benefiting from reshoring, AI-enabled productivity, and changing debt dynamics represents a tactical shift from conventional sector allocation approaches.

The most significant insight from Shue’s analysis is the interconnection between Fed policy expectations and broader structural economic transformations. Her forecast of three rate cuts is predicated on an economic deceleration that creates “room for the Fed to continue cutting interest rates into 2026” [5]. This positioning links the monetary policy outlook directly to the slowing growth narrative that Wilmington Trust’s forecast emphasizes.

The analysis suggests that inflation pressures from tariffs are viewed as transitory, with consumer spending expected to moderate as higher prices filter through the economy [5]. This transitory inflation view is critical to the three-cut scenario, as it assumes that the Fed will have sufficient flexibility to ease policy without reigniting price pressures. The durability of this transitory characterization represents a key variable in evaluating the plausibility of Shue’s outlook.

The market’s reaction during Shue’s February 3 appearance provides evidence of how markets may be positioning for the economic scenario she envisions [0]. The rotation from growth to value, from technology to defensive sectors, and from high-multiple names to more stable earners may be anticipating the economic slowdown that would justify aggressive Fed easing.

This rotation pattern suggests sophisticated investors are not simply reacting to the rate cut news but are implementing positioning consistent with Wilmington Trust’s broader investment thesis. If the economy is indeed slowing sufficiently to warrant three Fed cuts, the relative performance of defensive sectors and small-caps (Russell 2000 resilience) would be consistent with that narrative.

The alignment between Wilmington Trust and Citigroup as the most dovish major forecasters among major investment houses represents a notable concentration of opinion at the aggressive end of the expectation spectrum [3]. This minority position, when correct, would generate significant alpha for investors positioned accordingly. However, the broader consensus expectation of only two cuts suggests the market has priced in a less aggressive easing scenario.

The implications for investors are significant. Positioning for three cuts while the consensus expects two creates a potential opportunity if Wilmington Trust’s outlook proves accurate, but also carries timing risk if the first cut is delayed beyond anticipated dates.

Several factors support Wilmington Trust’s more aggressive rate cut expectation. Labor market resilience, evidenced by solid wage growth and continued hiring, suggests the economy can withstand gradual monetary easing without triggering an abrupt slowdown [3]. The expectation that tariff-driven price pressures will prove transitory, with consumer spending cooling as higher prices persist, provides the inflation backdrop necessary for sustained Fed accommodation.

Additionally, the Fed’s demonstrated willingness to respond to economic data rather than maintaining a predetermined path provides flexibility for the central bank to accelerate its easing trajectory if economic indicators warrant. The current economic slowdown creates policy space that the Fed has shown willingness to utilize.

The path to three rate cuts is not without significant obstacles. Persistent inflation remains a primary risk, as tariff effects may prove more durable than Wilmington Trust’s baseline scenario assumes. If price pressures remain elevated despite economic slowing—a phenomenon sometimes described as stagflation—the Fed may find itself constrained from delivering the anticipated accommodation.

Labor market overheating represents another potential complication. Continued strong wage growth and robust hiring could sustain aggregate demand at levels inconsistent with the inflation moderation the three-cut scenario requires. The contradiction between a strong labor market and the economic slowdown necessary for aggressive rate cuts represents a key tension in the outlook.

Geopolitical and trade policy uncertainty may create complications beyond tariff effects. The broader policy environment, including potential changes to trade agreements, regulatory frameworks, or fiscal policy, could influence the economic trajectory in ways that complicate Fed decision-making. Market pricing, with the CME FedWatch tool showing 97.2% probability of a January 2026 pause, indicates that markets have not fully internalized Shue’s more aggressive timeline [3].

For investors considering Wilmington Trust’s outlook, several opportunity windows emerge. Early positioning in rate-sensitive sectors—particularly small-caps, real estate investment trusts, and longer-duration fixed income—could generate returns if the three-cut scenario materializes. The sector rotation toward defensive names that occurred during Shue’s appearance [0] may present entry points for investors who share Wilmington Trust’s constructive view on the economic outlook.

The timing sensitivity is substantial. If the first cut materializes in March as Citigroup anticipates [3], rather than later in the year, the opportunity for early positioning would narrow. Investors must balance the potential reward of positioning ahead of consensus against the risk of premature entry if the economic deceleration proves slower than expected.

This analysis synthesizes insights from Meghan Shue’s February 3, 2026, CNBC Squawk Box appearance and Wilmington Trust’s 2026 Capital Markets Forecast to provide investors with a comprehensive understanding of the Fed rate outlook and its market implications.

Wilmington Trust expects three rate cuts totaling 75 basis points in 2026, positioning the firm alongside Citigroup as more dovish than the Wall Street consensus, which generally anticipates two cuts totaling 50 basis points [1][3][4]. The expected timeline calls for cuts beginning in March, with subsequent reductions in July and September, though Shue did not specify exact timing during her Squawk Box appearance [3].

Wilmington Trust’s “Investing in a Period of Economic Experimentation” framework emphasizes three transformative forces—reshoring, labor-AI dynamics, and debt experimentation—that will shape investment outcomes [5]. The forecast anticipates inflation easing as economic growth slows, creating policy space for sustained Fed accommodation.

The February 3 trading session revealed sector rotation consistent with Wilmington Trust’s investment themes, with technology declining 2.02% while defensive sectors posted gains exceeding 2% [0]. This rotation suggests market participants are processing and responding to the economic narrative underlying Shue’s rate cut expectations.

Eight of fourteen major brokerages expect two cuts in 2026, with timing concentrated in mid-to-late year [3]. J.P. Morgan and HSBC represent the contrarian view, expecting no rate cuts as the robust labor market reduces accommodation urgency.

The primary risks to Wilmington Trust’s three-cut outlook include persistent inflation beyond expected transitory tariff effects, continued labor market strength that could delay the soft landing narrative, and market pricing that has not fully incorporated the more aggressive easing scenario [3]. Investors should monitor inflation data, labor market indicators, and Fed communications for signals about the path of policy.