Investors Are Sure the Fed Will Hold Rates Steady as Meeting Kicks Off
Investors are all but certain that the Federal Reserve will hold interest rates steady tomorrow—but what the central bank does later this year is still anyone's guess. The market is pricing in a 99.9% chance that policymakers hold borrowing costs at their current level, according to the CME FedWatch tool.
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Back in March, the Fed predicted that the unemployment rate would be 4.3% by the end of 2026. Now, market consensus sees unemployment rising to 4.6%. A growing unemployment gap could pose a serious threat to the economy, and Dutta believes the Fed is not paying enough attention to it. "Based on the unemployment rate, they should be penciling in more cuts for 2026," Dutta said on a webinar Monday. Dutta's less concerned about a resurgence in inflation due to household budget constraints. Home prices have come down, meaning that Americans' net worth is falling as well. This tends to result in higher savings rates and less spending, keeping inflation subdued. "The Fed is essentially conditioning itself to be behind the curve right now," Dutta said. Tariff uncertainty is clouding the rate cut outlook for this year, Roland and Miskin believe. 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