US Interest Prep

On Wednesday, the 28th of January, at 14:00 ET, the FOMC concludes its 2-day meeting and announces the latest US Interest Rate decision.
Here are some views on what to expect.

General Expectations
Median analyst estimates expect the rate to remain unchanged at 3.75%.
At the start of this week, markets are pricing in a 97% chance of no change at this meeting.
The decision itself is unlikely to move markets unless there’s an unexpected dissent or a clear shift in language around the policy stance.
If realised, attention will turn to the rate statement for clues on the future direction of policy, as well as the subsequent press conference from Fed’s Chair Powell.

Traders will be laser-focused on:
Inflation progress: Any acknowledgement that disinflation is continuing sustainably vs. language stressing “insufficient confidence”
Policy bias: Whether the Fed maintains a “higher for longer” tone or subtly opens the door to future easing
Data dependence: How strongly the Fed emphasizes incoming inflation and labour data before acting
Even small tweaks (e.g. removing or softening “restrictive for some time”) could be interpreted as a dovish signal.

Powell’s Q&A is likely to dominate price action. Key themes:
Timing of cuts: Powell will likely push back on near-term rate cut expectations, stressing patience and the need for more data
Labour market balance: Whether the Fed sees cooling as “orderly” or still too tight
Financial conditions: Any concern that easing conditions could slow inflation progress
Risk management: Powell may emphasize avoiding a premature pivot that could reignite inflation
Markets will parse his tone closely — confident and relaxed messaging often reads dovish, even if the words themselves are cautious.

Commentary
Wells Fargo
Inflation is running ahead of the FOMC’s 2% target as the Committee heads into the January meeting next week. We believe the meeting will conclude with no change to the policy rate, in line with consensus expectations. The path of monetary policy in the months ahead is increasingly uncertain, however.
How to weigh the balance of risks with inflation above target and the unemployment rate slightly above most estimates of full employment remains a point of contention at the FOMC. How far the current federal funds rate target is from neutral, i.e., neither restrictive or accommodative, is another point of disagreement.
Labour market conditions have clearly softened, and the latest construction spending data published this week reminds us that several sectors such as residential and nonresidential construction remain highly constrained by elevated financing costs.

Overall, real GDP growth remains solid against a backdrop of resilient household spending and strong AI-related capex investment.
Prior monetary easing and supportive fiscal policy should allow these trends to continue over the course of 2026. As such, we continue to forecast two additional 25 bps cuts at the March and June meetings, but acknowledge the bar for additional rate cuts has been raised, with risks skewed toward later and possibly less easing this year.

Bank of America
The Fed has signaled it will keep rates on hold at 3.5–3.75% at the January meeting. The labor market is soft and inflation remains elevated, but both are stable, leaving the balance of risks broadly unchanged.
With policy now much closer to the Fed’s estimate of neutral, there is no urgency to act — particularly as the economy is set to receive a large dose of fiscal stimulus, making near-term growth above consensus and more front-loaded.

The biggest surprise in the intermeeting period has been the strength in economic activity, pointing to a pickup in productivity growth.
That has mixed policy implications: higher productivity likely raises the neutral rate, but is also disinflationary. On balance, this reinforces the case for policy inertia.
In the statement, the Fed is expected to upgrade its assessment of current conditions to reflect stronger recent data and clean up language now that the shutdown has passed. A subtle tweak could see “downside risks to employment have risen” replace “rose in recent months,” acknowledging recent labor stability. Forward guidance is unlikely to change, with the “extent and timing” phrasing — used previously when the Fed was on hold but biased to cut — still appropriate. Balance sheet language should update mechanically to reflect ongoing reserve management purchases.

Chair Powell is likely to face intense political questioning, particularly around the DOJ investigation into his testimony on Fed building renovations, but is expected to offer no additional comment beyond his January 11 statement. Questions about his plans after his term as Chair ends, and about Governor Cook’s hearing and Powell’s attendance at the oral arguments, are also likely — and similarly expected to draw non-answers.

Credit Agricole
The Fed is expected to pause at the January FOMC, leaving the target range unchanged at 3.50–3.75% after three consecutive 25bp cuts late in 2025. Markets are fully aligned with this outcome, pricing only a ~5% chance of another cut. The 75bp of insurance easing has brought policy much closer to neutral, reducing the urgency for further action — particularly as recent employment data show signs of stabilisation, including the unemployment rate ticking lower in December. Fed officials have accordingly signalled a more cautious approach, including a pause in January.

The meeting itself is expected to be uneventful, with limited changes to guidance, no adjustment to balance sheet policy, and no new dot plot or SEP until March. The Fed is likely to remain non-committal, emphasising data dependence and keeping options open. The base case remains hawkish, with the January pause extending through end-2026 before one final cut in early 2027. That view assumes strong growth, labour market stabilisation, and inflation struggling to return to 2%, though risks skew toward a shorter pause or lower terminal rate if the labour market weakens further.

Previous Release
On December 10th the FOMC delivered a widely expected 25bp rate cut to 3.75%, keeping policy moves aligned with market pricing and avoiding any surprise at the headline level.
The Summary of Economic Projections (SEP) reinforced a gradual and cautious easing path, with the median dots still pointing to limited additional cuts rather than an aggressive easing cycle.
Inflation projections were revised slightly lower, while growth and labour market forecasts remained broadly resilient, signalling confidence that the economy could cool without slipping into recession.

For markets, the key takeaway was that the Fed was comfortable cutting without signalling urgency. This balance drove a weaker dollar and lower bond yields, as rate expectations eased at the margin, while equities rallied, with the S&P 500 benefiting from confirmation that policy was shifting in a supportive direction without raising growth concerns.