January Fed Rate Cut Odds Slide Below 18% as U.S. Economic Data Stays Firm

December 28, 2025 — Market expectations for a Federal Reserve interest rate cut in January 2026 have fallen sharply. The shift signals growing confidence in the resilience of the U.S. economy. According to the CME Group FedWatch Tool, the probability of a January cut has dropped below 18%. Some readings place it closer to 13%. As a result, traders now expect policymakers to hold rates steady at the 3.75%–4.00% range when the Federal Open Market Committee meets in late January.

Just weeks earlier, markets priced in nearly a one-in-five chance of a cut. However, stronger economic data and cautious central bank guidance have forced investors to recalibrate expectations as 2025 draws to a close.

Market Reaction

Bond markets have responded quietly but decisively. In recent sessions, the 10-year U.S. Treasury yield edged higher, reflecting reduced expectations for near-term easing. Meanwhile, equity markets have shown increased volatility, particularly in rate-sensitive sectors such as technology and crypto.

At the same time, futures pricing now implies more than an 82% probability that the Fed will leave rates unchanged in January. This shift underscores how quickly sentiment has turned as incoming data continues to challenge the case for immediate monetary easing.

Skepticism & Risks

Despite the fading odds of a January cut, uncertainty remains. Inflation has cooled from its 2024 peaks but still sits above the Fed’s 2% target. Core personal consumption expenditures inflation is expected to trend toward 2.4%–2.6%, yet policymakers remain wary of declaring victory too early.