Traders have less faith in a Fed rate cut in 2026

Options market traders are increasingly excluding from quotes expectations of even one interest rate cut by the US Federal Reserve in 2026. Instead, they are building up positions that will play out if the U.S. Central Bank refrains from easing monetary policy all year.

This trend has been observed at least since the end of last week, when fresh U.S. employment data showed an unexpected drop in the unemployment rate, Bloomberg writes. Although the swaps market is still pricing in a 50 basis point Fed rate cut in 2026, the dynamics of trading in options on the benchmark interest rate SOFR indicates a strengthening of hawkish sentiment. The main volume of new positions with execution in March and June is aimed at hedging the risks of another postponement of monetary policy easing, but some market participants expect the key rate to remain in the current range of 3.5-3.75% until the end of the year, the agency notes.

"We have kind of a muddled employment picture, plus an inflation problem," said David Robin, an interest rate strategist at TJM Institutional Services. From a statistical perspective, he said, the likelihood of the Fed holding a pause until at least March has increased. And the more meetings of the regulator in 2026 will end with the rate remaining unchanged, the stronger will be the confidence that it does not plan to change course at all, the expert added.

Wall Street's largest bank, JPMorgan Chase, said after the release of December employment data in the U.S. that it no longer sees the preconditions for an interest rate cut in 2026 and predicts an interest rate hike in 2027. According to CME Group, North America's largest financial derivatives market, most investors are still pricing in two Fed interest rate cuts in 2026.

This article was AI-translated and verified by a human editor