Fed Leaves Rates Unchanged to Start 2026: Is a Cut Coming in March? - J.P. Morgan

💡 Fed signals interest rate cuts may not arrive until March as inflation concerns persist.

The Federal Reserve delivered a hawkish surprise on Wednesday, signaling that interest rate cuts remain further away than markets had hoped. Fed Chair Jerome Powell told reporters that the central bank needs "greater confidence" that inflation is sustainably declining before it will consider easing policy.

The 10-year Treasury yield surged to 4.8% in the aftermath, its highest level since October 2023. $TLT fell sharply as bond traders repriced the timing of the first cut from March to June.

Fed Signals Rates Higher for Longer

Powell's comments represent a significant shift from December's dovish pivot, which had sparked hopes of a rate cut as soon as March. With inflation still running above the Fed's 2% target, the central bank appears to be in no hurry to ease policy.

J.P. Morgan Sees 50% Chance of Rate Cut in March

J.P. Morgan economists are now pricing in a 50% chance of a rate cut in March, up from 20% previously. The bank's forecast is based on a more optimistic outlook for the economy, with GDP growth expected to accelerate in the second half of the year.

What It Means for Investors

The Fed's decision to keep rates unchanged has sparked a mixed reaction from investors. While some see the move as a sign that the Fed is committed to fighting inflation, others are concerned that the central bank is missing an opportunity to support the economy.

The S&P 500 has fallen sharply in recent weeks, with many investors fearing that a prolonged period of high interest rates will hurt corporate profits. However, some analysts believe that the Fed's decision to keep rates unchanged will ultimately prove to be a positive for the stock market.