Fed Signals No Rate Cuts Through 2026 as Inflation Remains Elevated Above 3%
The Federal Reserve is increasingly unlikely to cut interest rates in 2026 as inflation persists above 3%, according to recent market signals and Fed official commentary. Traders have removed essentially all probability of rate cuts through April 2031 based on futures pricing.
Rate Cut Expectations Collapse
Traders have removed any probability of a rate cut essentially through April 2031, according to fed funds futures pricing, with the rate curve implying a much stronger chance of hikes in coming years. Selling a rate cut with inflation north of 3% will be a difficult job, particularly considering the leanings of the current committee structure.
Inflation Remains the Central Focus
Friday's jobs report provided evidence that the central bank's larger concern is a cost of living that is getting increasingly hard to bear. The Fed will shift its focus to containing upside inflation risks now that the labor market appears back on track, with the FOMC potentially removing the easing bias from its next post-meeting statement in June, suggesting the hawks are gaining the upper hand.
Committee Dissent
At last week's FOMC meeting, three of the regional presidents voted against the post-meeting statement, not objecting to the decision to hold rates steady but rather to "forward guidance" language widely interpreted as signaling the next move would more likely be a cut.