Finance

Fed to pause rate cuts after three cuts; markets weigh duration risk

Federal Reserve policymakers are expected to hold the fed funds rate at 3.5%-3.75% in January after three 25 basis-point cuts in 2025, a forecast that hinges on incoming inflation and payroll data. CME FedWatch now prices a 97.2% odds that rates stay unchanged in January, underscoring a market waiting for clearer signals on the path to easing.

📅 January 27, 2026
⏱️ 2 min read
Fed to pause rate cuts after three cuts; markets weigh duration risk

Key Takeaways

  • FOMC expected to pause at 3.5%-3.75% in January after 25 bps cuts in each of the last three meetings.
  • CME FedWatch assigns 97.2% probability that rates stay unchanged in January.
  • 175 basis points of cuts have been delivered since Sep 2024, moving from 5.25%-5.50% to 4.0%-4.75%.
  • PCE inflation was 2.8% in November and unemployment 4.4% in December.
  • Minutes showed policymakers divided on further cuts; Powell is likely to hold a press conference after the decision.

People Involved

  • Jerome PowellFed Chair
  • Gregory DacoEY-Parthenon chief economist
  • Seema ShahPrincipal Asset Management chief global strategist

Entities Involved

  • Federal ReserveU.S. central bank
  • CME GroupOperator of CME FedWatch

MarketMoodz Analysis

Investors should expect a near-term policy pause to keep borrowing costs elevated and to pressure a re-pricing of equities and fixed income as the path to easing remains data-dependent. A slower march toward lower rates could sustain higher yields, widen credit spreads, and unevenly affect sectors—tech and financials tend to be more rate-sensitive than staples or utilities.

Historically, rate cycles have shifted from aggressive hikes to pauses before new cuts. The current backdrop—PCE inflation around 2.8% in November, a labor market still resilient at 4.4% unemployment, and the absence of a clear easing timetable—fits a data-dependent trajectory. Look for wage data, inflation readings, and the Fed minutes for further clues; analysts like EY-Parthenon’s Gregory Daco and Principal Asset Management’s Seema Shah forecast easing paths in 2026, albeit with different pace and conditioning on wage growth and inflation.

Source: Original Article

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