Tag: interest-rates

Here’s the current consensus around U.S. Federal Reserve interest rate expectations — are markets expecting the Fed to hold rates steady or cut them? The answer is both in different time frames, and the context matters a lot:

• Investopedia
• CBS News
• Yahoo Finance
• AP News
• Morningstar

🔹 Short-term outlook (next Fed meeting)

• The Fed is widely expected to hold interest rates steady at the upcoming January 2026 meeting, with no cut announced right now. (Investopedia)
• Fed officials are signaling they want to keep policy focused on data, not politics, and aren’t likely to cut this week. (AP News)
• Wall Street commentary also suggests policymakers are more cautious than aggressive on rate moves right now. (Morningstar)

Bottom line: Hold expected at current levels (often cited around 3.5–3.75% as of the latest cycle). (Trading Economics)

🔸 Medium-term view (through 2026)

Here, opinions diverge:

✅ Markets still price in potential cuts later in 2026

• Some economic projections (dot plots) have shown markets expecting one or two quarter-point cuts later this year as inflation cools. (Trading Economics)
• A nonpartisan U.S. budget office report also projects a lower final rate by year-end 2026. (The Telegraph)

⚠️ But many economists now think cuts may not happen until later or not at all

• Recent surveys of economists show most think the Fed will hold through at least the first quarter and possibly longer due to inflation still above the 2% target and continued moderate economic growth. (Investing.com)
• Some major bank forecasts (e.g., JPMorgan) have shifted to expecting no rate cuts in 2026 and even a potential hike later if growth and jobs stay strong. (Reddit)

Why this divergence?

• Inflation: still above the Fed’s 2% target in many measures.
• Labor market: remains relatively tight in parts of the data.
• Economic growth: decent enough that the Fed may not need to cut quickly.

📊 So what’s the practical expectation?

Here’s a simplified market consensus snapshot:

🧠 Key drivers shaping expectations

No cut likely right now because:

• Inflation remains elevated vs target.
• Fed officials emphasize data dependency.
• Economic resilience (especially jobs) reduces urgency for easing. (CBS News)

Cuts could still happen later if:

• Inflation falls closer to target.
• Growth slows meaningfully.
• Labor market weakens.

🔎 What markets are currently pricing

Financial markets (via futures and yield curves) still reflect some probability of cuts by mid-late 2026 — but those odds have been pulled back recently as strong data and official comments push the expected timing later. (Trading Economics)

📌 Bottom line

Right now: The Fed is expected to hold rates steady at the next meeting.
Looking forward through 2026: There’s no strong consensus yet — market pricing suggests possible cuts later in the year, but many economists now think cuts may be delayed or may not come if inflation and growth stay firm.

Here’s a breakdown of the likelihood of another Federal Reserve rate cut and what that could mean for markets:

✅ Probability of Another Rate Cut

• Market-based tools (like the CME Group FedWatch Tool) show ≈ 90%+ probability of a 25-basis-point cut at the next meeting (late October 2025).
• Futures markets are also pricing in ~70–80 basis points of total cuts in 2025 after the already-announced September cut.
• While a cut is very likely, there’s uncertainty about magnitude and timing beyond the next meeting; the Fed emphasizes it’s not on a “preset path.”

📊 Market Outlook Given Another Rate Cut

What the market is likely to do

• Stocks: Growth stocks (especially tech and long-duration names) and rate-sensitive sectors (housing, REITs) may rally as borrowing costs decrease and future earnings look more valuable.
• Bonds: Short-term yields should fall as the policy rate is cut; long-term yields may fall too if growth/ inflation fears dominate, which means bond prices rise.
• U.S. Dollar: Likely to weaken somewhat — lower short-term interest rates reduce foreign-investor demand for USD-denominated assets.
• Gold & safe assets: Could benefit as real yields (nominal yields minus inflation) drop, enhancing the appeal of non-yielding but inflation/allocation assets.
• Commodities: May get a boost, especially if the cut is seen as pre-emptive and supports growth; but if the cut signals deepening economic weakness, commodities may falter.

Potential caveats & risks

• If the cut is seen as a signal of economic weakness (rather than confidence) — e.g., labor market weak, growth faltering — then markets may start to worry about earnings declines and recession risk, which could offset the initial positive reaction.
• If inflation remains sticky, the Fed may highlight caution about further cuts; growth/tech may lag if rate cuts appear insufficient to stimulate.
• The magnitude of reaction may depend on communication: how the Fed frames forward guidance matters as much as the cut itself.