Federal Reserve Likely to Maintain Interest Rates in January

Summary

According to CME ‘FedWatch’ data, the probability of the Federal Reserve maintaining its current interest rate in January stands at 95.6%, with the chance of a 25 basis point cut at only 4.4%Zhitong. This marks a significant shift from early January when the probability of a hold was around 85%FX678. Consequently, expectations for a March rate cut have also diminished, with the probability falling to 27.6% from over 50%Zhitong. This repricing follows recent economic data, particularly on employment, which has led firms like Goldman Sachs to postpone their forecast for the first rate cut from March to June 2026Sina Finance.

Impact Analysis

So the market has fully capitulated on the early Fed cut narrative. Just ten days ago, a March cut was a coin flip; now it’s barely a one-in-four chanceZhitong. The January meeting is a lock for a hold at 95.6% probabilityZhitong. This repricing is all about the recent strong jobs data giving the Fed cover to waitAnueSec, and big players like Goldman are pushing their cut forecasts out to JuneSina Finance.

But this feels like an overcorrection. We’re seeing the classic tug-of-war inside the Fed, with some governors worrying they’re risking a labor market slowdown by waitingAnueSec. While the market is now fixated on a mid-year start, the overall direction is still down. This sell-off in bonds looks like a better entry point. I’d start rebuilding long duration positions here, fading this renewed ‘higher-for-longer’ chatter. The risk/reward has shifted favorably for betting on cuts arriving sooner than the new consensus expects.