Market Update 1/27/26

Why the Fed Is Likely to Hold Rates – For Now

The Federal Reserve meets on Wednesday, and the futures market is pricing a 97%+ chance of no change in short-term interest rates. In other words, a rate cut this week looks very unlikely—and cuts may not come soon.

Why the Fed can stay on hold (for now):

1) The economy is still growing at a healthy pace.

• Recent GDP data show solid momentum, and other “core” measures of growth still look respectable.
• Early estimates also suggest Q4 growth may have been strong.

2) The labor market isn’t flashing major warning signs.

• Unemployment ended 2025 at 4.4% (up from 4.1% a year earlier).
• Payroll growth has continued, and the household survey suggests job gains have remained meaningful over the past year.

3) Inflation is still above the Fed’s comfort zone.

• CPI rose 2.7% in 2025 (year over year), with core CPI up 2.6%.
• Other inflation measures tied to GDP also remain elevated.

What could improve inflation in 2026:

• Money supply growth (M2) has been relatively restrained over the past year, which can help cool inflation over time.
• Rent inflation may ease as market rent measures have slowed, and housing costs are a large part of CPI.

Bottom line:
The Fed has enough evidence to keep rates steady right now. We’ll be watching Wednesday’s message closely—especially any hints about when the Fed might feel comfortable shifting toward more cuts.

As always, if you’d like to discuss what this means for your portfolio, cash strategy, or borrowing plans, just reply to this email and we’ll set up a quick call.