The Fed's Waiting Game: What Markets Expect on Rates and Inflation
With the January FOMC meeting days away, prediction markets show strong expectations that rates will hold steady—and may stay that way longer than many hoped.
The Fed's Waiting Game: What Markets Expect on Rates and Inflation
The Federal Reserve's January meeting kicks off in a week, and prediction markets are signaling what most observers already suspect: rates aren't going anywhere. But the picture on inflation and growth reveals a more nuanced story about where the economy stands.
Rates: Steady as She Goes
Markets place just 1.8% odds on the Fed raising rates by 25 basis points after its April meeting—essentially pricing in near-certainty that the current rate environment persists into spring. The pause-cut-pause pattern that some had hoped for is trading at just 10.5%.
This represents a significant shift from expectations earlier in the rate cycle. The Fed achieved its "soft landing" goal of bringing inflation down without triggering recession, but the final mile back to the 2% target has proven stubborn.
Inflation: The Sticky Middle
January's CPI report, due February 11th, shows forecasters pricing multiple scenarios. The 2.5% annual inflation bracket trades at 36%, while the 2.7%+ bracket sits at just 7.7%. The 2.2% bracket—which would represent meaningful progress—trades at only 2.65%.
This distribution tells a story: inflation is expected to remain elevated but not accelerating. The "last mile" problem that Fed officials have discussed publicly is exactly what markets are pricing.
No Recession in Sight
Despite rate concerns, markets express confidence in continued growth. The probability of negative GDP growth in 2026 sits at just 9.75%—forecasters are pricing roughly 90% odds of a positive-growth year.
The GDP growth report for 2025, due January 29th, will provide the first concrete data of the year. Markets give 14% odds to growth exceeding 2.5%—a modest probability that reflects the cooling effect of higher rates.
Germany's Divergent Path
Notably, European concerns paint a different picture. German GDP growth for Q4 2025 below 0% trades at 7%—relatively low but notably higher than recession odds for the US. Germany's industrial economy has faced particular headwinds from energy costs and automotive transitions.
What This Means
The prediction market consensus paints a picture of economic stability with persistent irritants. Growth continues, recession risks remain low, but the path back to 2% inflation remains unclear.
For the Fed, this suggests continued patience is priced in. Rate cuts may eventually come, but markets aren't betting on imminent action. The central bank appears to have won the inflation battle's decisive phases, but mopping up operations continue.
The January FOMC statement, expected January 29th, will be watched closely for any signals about the committee's evolving views. Current pricing suggests any hawkish surprise would catch markets off guard.
Analysis informed by aggregated forecaster data from Polymarket as of January 20, 2026.