Slim Odds for January Rate Cut: Market Signals Point to Fed Pause as Employment Remains Resilient

Market pricing has dramatically shifted following the latest employment report, with fed rate cut expectations for January now standing at just 5% according to CME futures data. This sharp reversal reflects institutional reassessment of the Federal Reserve’s policy trajectory.

Employment Data Complicates the Rate-Cut Narrative

The December jobs market presented a mixed picture that has emboldened rate-pause advocates. While the unemployment rate ticked down more than anticipated to 4.4%, reversing recent upward momentum, job creation growth continued its deceleration. Subsequent data revisions are likely to show even softer hiring figures, yet the labor market remains sufficiently resilient to give policymakers pause.

This resilience proves crucial to the Federal Reserve’s near-term calculus. With unemployment stabilization and no alarming deterioration in employment metrics, the central bank faces limited urgency to ease policy further. The narrative has shifted from proactive rate cuts to a more cautious, data-dependent approach.

2026 Rate Cut Trajectory Reshuffled

Rather than January action, market participants have repriced expectations for additional easing into the latter half of 2026. CME data now points to two rate cuts projected for the year, with cuts now anticipated in June and September—a material delay from prior expectations that had considered earlier timing.

The Powell Factor

Going forward, guidance from incoming Federal Reserve leadership will likely serve as the primary driver of rate-cut expectations. Policy signals and communications from the new chairman will command close attention from market participants monitoring the potential for monetary accommodation in the quarters ahead.

The bar for January action remains prohibitively high given current economic conditions and employment stability.