Traders on Wall Street are pushing back expectations for when the Federal Reserve will begin cutting interest rates, as stronger-than-expected economic data keeps the U.S. central bank on the sidelines longer than previously anticipated.
Money markets now reflect expectations for three quarter-point cuts in 2025, down from four at the start of April. That’s a noticeable shift in sentiment, and one that suggests investors are bracing for a longer wait before the Fed pivots to easing. Meanwhile, 2026 is shaping up to be the year with the most anticipated policy action, with around 50 basis points of additional cuts priced in.
This comes just one day before the Fed’s latest policy decision, where it’s widely expected to hold its benchmark rate steady in the 4.25%–4.50% range.
Powell in Focus: Does Trump’s Policy Shift the Fed’s Tone?
With President Donald Trump’s aggressive tariff policies raising inflationary red flags, the spotlight is now on Fed Chair Jerome Powell, who’ll deliver a closely-watched statement following the Wednesday FOMC meeting.
Policymakers have remained notably cautious in recent weeks, emphasizing patience over preemptive action, particularly as new trade measures threaten to push prices higher — at least in the short run.
“Unless something bad happens between now and June, it means the Fed doesn’t need to go,” said Kevin Flanagan, head of fixed income strategy at Wisdom Tree.
Last week’s stronger-than-expected April jobs report, paired with solid ISM services data, has only strengthened the case for a delay in rate cuts. Traders are now largely pricing out the chance of a June cut, a shift reflected in both options markets and futures curves.
Traders Unwind Early Bets, Reposition for Later Action
The shift isn’t just showing up in projections — it’s impacting portfolios.
CME data shows a wave of deleveraging and position unwinds in short-term bond bets following last Friday’s payrolls release. Some hedging strategies are also being restructured for a later timeline, pushing maturities deeper into the second half of 2025 or even 2026.
Meanwhile, JPMorgan’s latest Treasury client survey shows a market still wrestling with uncertainty. Neutral positioning remains near yearly highs, a sign that institutional investors are not yet confident in any singular macro narrative.
Trade Policy = Wild Card
While economic data is giving the Fed breathing room, Trump’s trade policy remains the big unknown. With fresh tariffs on China, Europe, and foreign-made goods sparking fears of a new inflationary wave, the central bank may be forced to delay cuts further — or shift its tone altogether.
That makes Powell’s messaging on Wednesday critical. The market will be dissecting every phrase and pause, looking for clues on how the Fed balances solid growth data with rising geopolitical and trade-related risks.
For now, the message is clear: Rate cuts aren’t off the table — but they’re not around the corner either.
