Will the Fed Cut Interest Rates at the January 2026 FOMC Meeting?

The Federal Reserve's Federal Open Market Committee (FOMC) convenes January 27-28, 2026, for its first policy meeting of the year. After cutting rates three times in the second half of 2025, bringing the federal funds rate to a range of 3.5% to 3.75%, market participants overwhelmingly expect the central bank to hold rates steady.

Current Situation

The federal funds rate currently stands at 3.5% to 3.75% following three consecutive quarter-point reductions in the second half of 2025. According to CME Group's FedWatch tool, traders assign only a 16% probability to a rate cut at the January meeting, with approximately 80% expecting rates to remain unchanged. The Polymarket prediction market shows an even more decisive consensus, with 97% probability assigned to "no change" in January.

Key Economic Factors

Federal Reserve Chair Jerome Powell has articulated the central bank's dilemma clearly. Following the December 2025 meeting, Powell stated that "a very large number of participants agree that risks are to the upside for unemployment and to the upside for inflation," highlighting the dual mandate challenge facing policymakers.

The December jobs report showed improved economic momentum and a decline in the unemployment rate, prompting Morgan Stanley to revise their 2026 forecast. The investment bank now projects one rate cut in June and another in September, rather than their previous expectation of January and April cuts.

Policy Context

The three rate cuts in 2025 totaled 75 basis points, bringing rates down from the 4.25% to 4.5% range that prevailed earlier in the year. Fed officials signaled at their December meeting a substantial raising of the bar for additional cuts, indicating a desire to pause and evaluate the cumulative effect of their easing measures.

The median projection from the Fed's interest rate forecast ("dot plot") anticipates one additional 25-basis-point cut in 2026, suggesting a cautious approach to further easing.