Fed Set To Signal No Rush To Cut Rates As Wall Street Awaits Policy Clarity

The Federal Reserve is widely expected to keep interest rates steady at 4.25%-4.50% on Wednesday, but for Wall Street, the stakes couldn't be higher.

After a brutal tech selloff erased trillions in market value on Monday and President Donald Trump ramped up pressure for immediate rate cuts last week, investors are desperate for clarity on when the central bank will move next.

Markets are hoping for a dovish signal, but Powell may not deliver it. Inflation risks are creeping back, economic growth remains solid, and policymakers appear content to take their time before making further adjustments.

No Rush To Cut: Powell To Play It Safe

Since December, the data flow has justified a more hawkish stance from the Fed. The labor market remains strong, inflation is stabilizing above target, and growth is defying expectations of a slowdown.

As of Jan. 28, the Atlanta Fed’s GDPNow model estimates fourth-quarter 2024 real economic growth at an annualized 3.2%, up from 3.0% on Jan. 17. This marks a slight acceleration from the 3.1% growth recorded in the third quarter and 3.0% in the second quarter.

“Federal Reserve officials this week will leave the door open to resuming interest rate cuts as soon as March but will also signal a higher bar for reductions amid signs that inflation could be stuck uncomfortably above its target,” wrote Market News analyst Pedro da Costa.

“The January FOMC meeting is mostly a placeholder that should see the Fed stay on hold, markets expect little from the meeting,” wrote Bank of America economist Aditya Bhave in a note this week.

“We expect Chair Powell to retain maximal optionality on the March policy decision at his press conference,” Bhave added.

Bank of America remains “comfortable” that the Fed rate-cutting cycle has ended, positioning itself as one of Wall Street's most hawkish investment banks.

Market Expectations: When Will The Fed Deliver The Next Cut

Market-based interest rate expectations tracked by fed futures currently indicate a 93% probability that the Federal Reserve will deliver two 25-basis-point cuts by the end of 2025.

The likelihood of a rate cut at the March meeting stands at 30%, according to the CME FedWatch tool, while odds for a move in May are near 50-50.

A second cut, however, may not come until late October, with market-implied probabilities assigning a 70% chance to that timeline.

Betting markets, as tracked by the CFTC-regulated platform Kalshi, also align with expectations of two rate cuts in 2025.

For those speculating on alternative scenarios, a single rate cut, currently priced at 23% odds, offers a $4 payout per dollar wagered. A more aggressive bet on no cuts at all, a view backed by Bank of America and carrying 13% probability, could yield $6 for every dollar invested.