Traders now see little chance of an interest rate cut this year following Fed decision

• Fed funds futures now show just 17.2% probability of a rate cut this year, down from earlier expectations of cuts in June and September, with the probability of a rate hike rising to 8.4%
• Powell called economic growth 'solid' despite zero net job growth and inflation above the Fed's 2% target, barely addressing the Iran war's economic implications
• For the Fed's next meeting on April 28-29, traders are pricing in zero chance of a cut and a 10.3% probability of a quarter-point rate increase

Market Summary: Fed Decision Dampens Rate Cut Expectations

Key Developments

Following this week's Federal Reserve meeting, traders have drastically reduced expectations for interest rate cuts in 2026, with fed funds futures markets showing only a 17.2% probability of even a quarter-point reduction this year as of Thursday morning. The likelihood of a rate hike actually increased slightly to 8.4%.

Fed Stance and Market Reaction

Fed Chair Jerome Powell delivered an upbeat economic assessment despite "zero" net job growth and inflation remaining above the 2% target. He characterized economic growth as "solid" and showed little inclination toward policy easing. Notably, Powell barely addressed the ongoing Iran war despite market uncertainty.

Stock markets reacted negatively to the Fed's optimism, with equities declining both Wednesday and Thursday morning. Market veteran Ed Yardeni dubbed this a "taper tantrum"—investors revolting against expectations of tighter monetary policy.

Shifting Expectations

Prior to recent developments, traders anticipated multiple cuts throughout the year, beginning in June. The Fed's "dot plot" showed a mild hawkish shift in officials' rate projections. Powell referenced "uncertainty" over a dozen times, conditioning future policy on oil shocks and tariff impacts on inflation.

Market Implications

Fundstrat analysts noted the economy has "absorbed shocks better than expected," supporting the Fed's patient approach. The next catalyst will be whether inflation data shows tariff-sensitive goods easing before energy costs spread further.

For the April 28-29 meeting, traders see zero chance of a cut and a 10.3% probability of a rate increase, marking a dramatic reversal from earlier dovish expectations.