Ahead of the FOMC decision, the Fed funds futures market was pricing in 55 basis points of easing this year. That’s shifted to 65 bps currently.

At first that sounds strange given that the FOMC dot plot took a hawkish shift but the risk was that we would see Powell take an alarmist view of the inflationary impacts of tariffs. Instead, he jumped back on Team Transitory and indicated that Fed staff forecasts also took tariff retaliation into account.

The market is likely taking a dimmer view on growth this year and given the Fed’s thinking on inflation, that leaves more potential room for rate cuts. By March 2026, there are now three cuts fully priced in and that would get the Fed to a range of 3.50-3.75%.