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January Rate Cut? Markets Say Don't Count On It As Odds Plunge To 18%

MarketDash Editorial Team
15 hours ago
After Jerome Powell's "wait and see" message at Wednesday's Fed meeting, traders are scrambling to adjust their expectations. The odds of a January rate cut have collapsed, and some analysts think the freeze could last well into 2026.

If you were banking on a January rate cut, you might want to recalibrate. Markets did a complete about-face after Wednesday's Federal Reserve meeting, with traders rapidly dumping their near-term easing bets following Chair Jerome Powell's decidedly cautious tone.

The shift was dramatic. On Thursday, retail prediction platform Polymarket pegged the probability of no change in January at 82%, leaving just 18% odds for a 25-basis-point cut. Compare that to the day before, when cut odds stood at 25%. Fed funds futures told a similar story, with the CME FedWatch Tool pricing in a 75.6% chance of a hold and 24% odds of a cut.

What triggered the reversal? Powell made it clear during his press conference that the Fed is in no hurry. The central bank has already delivered 75 basis points of easing since September, and policy now sits "within a broad range of neutral," he noted. Translation: we've done our job for now, let's see what happens next.

The Fed's focus has shifted squarely to the labor market, particularly after months of cooling and expectations for a downward revision to payroll growth. That stance effectively slammed the door on a near-term cut.

What The Experts Are Saying

Wall Street veterans are reading between the lines. Ed Yardeni thinks the Fed is "well positioned to do nothing for a while," interpreting Powell's messaging as an attempt to stabilize policy after three consecutive cuts. Makes sense when you think about it—why rush when you've already moved aggressively?

Bill Adams, chief economist at Comerica Bank, sees the updated dot plot and Powell's remarks as evidence of a "higher bar" for additional easing next year. He also flagged an interesting wildcard: Powell's term expires in May, creating uncertainty about whether political pressure—specifically President Donald Trump's calls for a more dovish Fed Chair—might influence the trajectory of rate cuts in the second half of 2026.

Bank of America economist Aditya Bhave was more direct, saying Powell "indicated, in our view, that a January pause is his base case." But Bhave stressed that the Fed remains heavily data dependent. With nearly three months of employment, inflation, and activity data landing before the next meeting, the unemployment rate will likely be the deciding factor. His framework? A print of 4.5% or below validates a hold, 4.6% makes it a coin flip, and 4.7% or higher could force another cut.

David Mericle from Goldman Sachs highlighted what he called the most striking revelation: Powell's acknowledgement that payrolls may be overstated by 60,000 jobs per month—double Goldman's own estimate of 30,000 to 35,000. Mericle still expects two normalization cuts in March and June 2026, but noted the dot plot shows unusually wide dispersion, with terminal-rate estimates ranging from 2.5% to 2.75% all the way up to 3.75% to 4%.

Markets Take A Hit On Oracle News

The uncertainty around Fed policy combined with a brutal 15% plunge in Oracle Inc. (ORCL) sent Wall Street lower on Thursday, wiping out Wednesday's gains as tech-heavy indices slipped in early New York trading.

The Nasdaq 100, tracked by the Invesco QQQ Trust (QQQ), fell 1.5%, while the Roundhill Magnificent Seven ETF (MAGS) declined by the same amount.

So where does that leave us? Powell has made his position clear: the Fed is in wait-and-see mode. With labor market data taking center stage and political uncertainty lurking in the background, the path forward for rate cuts in 2026 is anything but certain. For now, traders are betting on a long pause—and they're adjusting their positions accordingly.

Back to News

January Rate Cut? Markets Say Don't Count On It As Odds Plunge To 18%

MarketDash Editorial Team
15 hours ago
After Jerome Powell's "wait and see" message at Wednesday's Fed meeting, traders are scrambling to adjust their expectations. The odds of a January rate cut have collapsed, and some analysts think the freeze could last well into 2026.

If you were banking on a January rate cut, you might want to recalibrate. Markets did a complete about-face after Wednesday's Federal Reserve meeting, with traders rapidly dumping their near-term easing bets following Chair Jerome Powell's decidedly cautious tone.

The shift was dramatic. On Thursday, retail prediction platform Polymarket pegged the probability of no change in January at 82%, leaving just 18% odds for a 25-basis-point cut. Compare that to the day before, when cut odds stood at 25%. Fed funds futures told a similar story, with the CME FedWatch Tool pricing in a 75.6% chance of a hold and 24% odds of a cut.

What triggered the reversal? Powell made it clear during his press conference that the Fed is in no hurry. The central bank has already delivered 75 basis points of easing since September, and policy now sits "within a broad range of neutral," he noted. Translation: we've done our job for now, let's see what happens next.

The Fed's focus has shifted squarely to the labor market, particularly after months of cooling and expectations for a downward revision to payroll growth. That stance effectively slammed the door on a near-term cut.

What The Experts Are Saying

Wall Street veterans are reading between the lines. Ed Yardeni thinks the Fed is "well positioned to do nothing for a while," interpreting Powell's messaging as an attempt to stabilize policy after three consecutive cuts. Makes sense when you think about it—why rush when you've already moved aggressively?

Bill Adams, chief economist at Comerica Bank, sees the updated dot plot and Powell's remarks as evidence of a "higher bar" for additional easing next year. He also flagged an interesting wildcard: Powell's term expires in May, creating uncertainty about whether political pressure—specifically President Donald Trump's calls for a more dovish Fed Chair—might influence the trajectory of rate cuts in the second half of 2026.

Bank of America economist Aditya Bhave was more direct, saying Powell "indicated, in our view, that a January pause is his base case." But Bhave stressed that the Fed remains heavily data dependent. With nearly three months of employment, inflation, and activity data landing before the next meeting, the unemployment rate will likely be the deciding factor. His framework? A print of 4.5% or below validates a hold, 4.6% makes it a coin flip, and 4.7% or higher could force another cut.

David Mericle from Goldman Sachs highlighted what he called the most striking revelation: Powell's acknowledgement that payrolls may be overstated by 60,000 jobs per month—double Goldman's own estimate of 30,000 to 35,000. Mericle still expects two normalization cuts in March and June 2026, but noted the dot plot shows unusually wide dispersion, with terminal-rate estimates ranging from 2.5% to 2.75% all the way up to 3.75% to 4%.

Markets Take A Hit On Oracle News

The uncertainty around Fed policy combined with a brutal 15% plunge in Oracle Inc. (ORCL) sent Wall Street lower on Thursday, wiping out Wednesday's gains as tech-heavy indices slipped in early New York trading.

The Nasdaq 100, tracked by the Invesco QQQ Trust (QQQ), fell 1.5%, while the Roundhill Magnificent Seven ETF (MAGS) declined by the same amount.

So where does that leave us? Powell has made his position clear: the Fed is in wait-and-see mode. With labor market data taking center stage and political uncertainty lurking in the background, the path forward for rate cuts in 2026 is anything but certain. For now, traders are betting on a long pause—and they're adjusting their positions accordingly.