Fed Poised to Hold Rates Steady After Three Straight Cuts — Evening Brief – 01.27.26
The Federal Reserve is widely expected to leave its policy rate unchanged following Wednesday’s two-day meeting, pausing after three consecutive cuts in 2025. Fed funds futures are pricing a high probability that the target range remains at 3.5%–3.75%, with the next potential move not expected until June at the earliest.
“I think the market is correct this time, and we will not get a rate cut,” said Scott Hensley, CCIM, SIOR, principal and broker at Piedmont Properties/CORFAC International. “While most indications are that inflation is in check, the data is not overwhelming to give the Fed Governors confidence to take a chance on a cut now that could ignite inflation, which would make their next move a rate increase. This would signal a mistake on their part and is the last thing they want, especially with Jay Powell at the end of his term.”
Bond markets are echoing that caution. The spread between the policy-sensitive 2-year Treasury yield and the effective fed funds rate has narrowed to near its smallest level in almost a year—a sign that traders are no longer anticipating imminent rate cuts, unlike last spring when the 2-year yield traded more than 80 basis points below policy rates.
Resilient U.S. growth is another reason for patience: Economic activity has remained firm, complicating the case for additional easing. The Atlanta Fed’s GDPNow model is currently projecting fourth-quarter growth of 5.4%, which would mark the strongest pace in four years.
Some see the central bank holding steady as long as the economy remains firm. “We fully expect the Fed to pause on any rate changes in the short term as they seek more data and address Fed leadership changes,” said Trent Scott, CCIM, President of First Capital Property Group/CORFAC International. “Based on who we follow in the space, we are currently expecting two, maybe three rate cuts over the course of this year, but not until later in the year.”
Inflation, meanwhile, remains sticky but stable. Headline and core PCE both ticked up to a 2.8% year-over-year pace in November. The Richmond Fed has noted that recent readings suggest inflation is behaving “in a manner broadly consistent with — or slightly below — the Fed’s 2 percent target.”
Scott added that lower short-term rates are aiding select property segments: “We expect multi-family to benefit from the relatively stable longer-term rates and cheaper construction financing, and hospitality has and will benefit from the changes to decreased short-term indexed rates for bridge financing.”
For now, the Fed appears content to wait—and markets are following its lead.