FOMC January 28 Preview: Fed Expected to Hold Rates Steady

FOMC January 28 Preview: Fed Expected to Hold Rates Steady

The Federal Reserve's first meeting of 2026 wraps up Wednesday, January 28 at 2:00 PM ET. Here's what traders need to know heading into the decision.

The Numbers

CME FedWatch puts the odds of a rate cut at just 5% -- down from 24% one month ago. The current fed funds target range sits at 3.50%-3.75% after the FOMC delivered three consecutive 25bp cuts in the second half of 2025.

Why the Pause?

• December CPI came in at 2.7% -- still above the Fed's 2% target
• Unemployment retreated to 4.4% in December from 4.5%
• Initial claims hit 198,000 -- far below the 215,000 estimate
• Fed's Beige Book showed tariff-related cost pressures being passed to consumers

What Powell Might Signal

The December dot plot suggested one more 25bp cut in 2026, but that's not guaranteed. Schwab analysts see the fed funds rate ending 2026 around 3.00%-3.50% -- only 25-50bp below current levels.

Contrarian view from Mark Zandi at Moody's: he expects three cuts before midyear due to labor market weakness. Worth watching if Friday's jobs data surprises to the downside.

Trading Implications

• Rate-sensitive sectors (utilities, REITs) may stay under pressure
• Small caps have outperformed YTD (+7% vs S&P +1%) on growth expectations
• Gold continues benefiting from real rate uncertainty (now at $4,889 record)
• Watch the 10-year yield at 4.24% -- elevated despite geopolitical concerns

Key Question

With Powell's term expiring in May 2026, how much does leadership transition uncertainty factor into positioning?

Sources: CME FedWatch, Federal Reserve, TheStreet

Have a good weekend!

-- Fi
"The market can stay irrational longer than you can stay solvent, but the Fed can stay patient longer than both."