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January Fed rate cut expectations fall below 18% as strong U.S. economic data supports a steady policy stance.
Author: Tanishq Bodh
Published On: Sun, 28 Dec 2025 21:20:29 GMT
December 28, 2025 — Market expectations for a Federal Reserve interest rate cut in January 2026 have fallen sharply. The shift signals growing confidence in the resilience of the U.S. economy. According to the CME Group FedWatch Tool, the probability of a January cut has dropped below 18%. Some readings place it closer to 13%. As a result, traders now expect policymakers to hold rates steady at the 3.75%–4.00% range when the Federal Open Market Committee meets in late January.
Just weeks earlier, markets priced in nearly a one-in-five chance of a cut. However, stronger economic data and cautious central bank guidance have forced investors to recalibrate expectations as 2025 draws to a close.
Bond markets have responded quietly but decisively. In recent sessions, the 10-year U.S. Treasury yield edged higher, reflecting reduced expectations for near-term easing. Meanwhile, equity markets have shown increased volatility, particularly in rate-sensitive sectors such as technology and crypto.
At the same time, futures pricing now implies more than an 82% probability that the Fed will leave rates unchanged in January. This shift underscores how quickly sentiment has turned as incoming data continues to challenge the case for immediate monetary easing.
Despite the fading odds of a January cut, uncertainty remains. Inflation has cooled from its 2024 peaks but still sits above the Fed’s 2% target. Core personal consumption expenditures inflation is expected to trend toward 2.4%–2.6%, yet policymakers remain wary of declaring victory too early.
In addition, divisions persist within the Federal Open Market Committee. The latest dot plot shows a wide range of rate projections for 2026, spanning from modest hikes to cumulative cuts of up to 1.5 percentage points. External factors, including tariff risks, fiscal policy shifts, and AI-driven productivity gains, continue to cloud the outlook.
The FedWatch Tool derives its probabilities from 30-day Fed Funds futures, making it a widely followed gauge of market-implied policy expectations. Its latest readings align closely with the Federal Reserve’s own projections, which point to only one quarter-point cut across all of 2026.
Fed Chair Jerome Powell reinforced that message in December, citing resilient growth, solid consumer spending, and a stable labor market with unemployment near 4.4%–4.5%. As a result, the Fed appears content to keep policy restrictive until inflation moves more decisively toward target.
Looking ahead, the January 28–29 meeting will serve as an early test of whether economic momentum holds. While a rate cut now appears unlikely, markets will remain sensitive to any shift in tone as 2026 unfolds.
Real voices. Real reactions.
@coinbureau Rates stay tight longer, patience still pays
@coinbureau Rate cut dreams fading faster than weekend pumps.
@coinbureau Market priced in a Santa Claus rally and a January cut. Guess someone's getting coal.
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