January 2026 Fed & Rates Call Update

Anticipating a longer pause drives us to push back our first cut

• Easing tension in the balance of risk between the Fed’s dual mandate and the characterization of current policy as being “in a good place” made the January FOMC meeting come across as neutral to slightly hawkish (relative to our expectation of a more dovish event). That said, Chair Powell still presented a relatively more dovish tone as the press conference progressed. However, excluding Waller and Miran, the FOMC appears to not be in a rush to cut. By leaving out any mention of the upcoming benchmark revision to the jobs numbers and instead stressing the upside potential to growth, this suggests to us that the Fed is in a “wait and see” mode.

• Fed Rate Path Implications: We now expect a slightly longer Fed pause and we have pushed back our next cut to April 2026. This would be Powell’s last FOMC meeting as Chair where we expect that he will still favor cutting if the data warrants it (we think the jobs data will remain weak throughout 2026). Based on our bearish leaning view, we still believe that the Fed will cut 3 times to/under neutral in 2026. However, we have compressed our view by removing the optionality of a 4th cut in late Q3 following the January FOMC press conference where Chair Powell stressed the importance of protecting Fed independence and his advice to his successor to avoid “get(ting) pulled into elected politics” (code for not cutting so close to the midterm elections).

• US Rates Forecasts: Although we removed one cut from our Fed forecast, we still see cuts driving the whole curve (outside of 30s) sub the 4% level with 3.5% resistance for 10s. However, we slightly adjusted some of our point estimates upward by 12.5bps in Q2.