Traders are betting on a slower pace of interest-rate cuts from the Federal Reserve in 2025. But they are raising their bets on more aggressive cuts in 2026.
Just a day ahead of the central bank’s interest rate decision, money markets have moved to price in three quarter-point reductions this year, one less cut than was priced in at the start of April. About a half point of additional cuts are expected next year, the most priced in for 2026 at any point in the current easing cycle.
Traders will be scrutinizing comments by Fed Chair Jerome Powell on Wednesday—-when the central bank is expected to keep its benchmark rate steady at 4.25%-4.50%-—for clues on any change in policymakers’ view on the timing for further rate cuts.
The CME FedWatch tool puts the odds of no cut at tomorrow’s meeting at 97%.
Market expectations for a cut at the June policy meeting have also faded since Friday, when employment data came in stronger than economists predicted. Monday’s April ISM services data also hinted at economic strength.
The FedWatch odds for no cut at the June 18 meeting were at 68% today, May 6.
