The Fed's Holding Pattern: Why Rate Cuts Keep Getting Postponed

For over a year, financial markets have anticipated Federal Reserve rate cuts that never quite arrive. Now, prediction markets show the Fed stuck in a holding pattern: under 2% odds of hiking at the April meeting, and only 10.5% odds of a specific pause-cut-pause pattern through the first four months of 2026.

The message is clear: the Fed is going nowhere fast.

The Persistence of Pause

When the Fed began raising rates in 2022, most observers expected a rapid cycle: up, plateau, down. Instead, rates rose faster than expected, stayed higher for longer than expected, and cuts have been slower than expected.

Markets are now pricing in an extended pause at current levels. Neither hiking nor cutting appears imminent. The FOMC seems content to wait for clearer signals before moving in either direction.

Why No Cuts Yet?

Several factors keep the Fed hawkish:

Sticky inflation: While headline inflation has fallen from 2022's peaks, core measures remain above the 2% target. Services inflation has proven particularly persistent.

Labor market strength: Unemployment remains low. The Fed historically waits for labor market weakness before cutting rates—and that weakness hasn't materialized.

Fiscal uncertainty: Government spending levels, tax policy, and tariff plans all create uncertainty about future inflation. The Fed may want to see these policies implemented before responding.

Credibility protection: Having spent 2022-2023 fighting inflation, the Fed doesn't want to declare victory prematurely. A rate cut followed by rising inflation would damage institutional credibility.

Why No Hikes?

The sub-2% probability of an April hike reflects different constraints:

Growth concerns: While recession isn't the base case, growth has moderated. Additional tightening could push the economy toward contraction.

Real estate stress: Commercial real estate, particularly office properties, faces significant challenges at current rate levels. Higher rates could trigger defaults.

Political pressure: With an election in 2028 and midterms in November 2026, the Fed faces implicit (if not explicit) pressure to avoid actions that slow the economy.

Mission accomplished (mostly): Inflation is heading in the right direction, even if progress is slow. The case for additional tightening has weakened substantially.

The 10.5% Pattern

The specific pause-cut-pause pattern (holding in January, cutting in March, holding in April) at 10.5% probability represents a minority scenario. It would require:

• January inflation data to be soft enough to justify March action
• Enough economic resilience to avoid consecutive cuts
• A Fed willing to act on uncertain data

Most forecasters see a more extended timeline for any cuts, likely in the second half of 2026 or into 2027.

What This Means

The Fed's paralysis has implications:

For borrowers: Mortgage rates, auto loans, and credit cards remain expensive. Relief isn't coming soon.

For savers: High-yield savings accounts and CDs continue to offer attractive returns—unusual by historical standards.

For markets: The absence of rate cuts removes a potential catalyst for stock and bond rallies.

For housing: The locked-in effect (existing homeowners with low mortgage rates refusing to sell) continues to constrain inventory.

Conclusion

The Fed has adopted a wait-and-see posture, and markets have accepted it. With neither hikes nor cuts likely in the near term, the economy operates in a high-rate regime that—by historical standards—represents the new normal rather than a temporary extreme. Patience, it seems, is the Fed's primary policy tool.

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Analysis informed by aggregated forecaster data from Polymarket as of January 20, 2026.