Federal Reserve rate cut expectations reverse: Traders prepare to stay on the sidelines for the whole year

【Chain Wen】A recent interesting phenomenon has emerged in the options market—an increasing number of traders are changing their tune, no longer expecting the Federal Reserve to cut interest rates in 2026, but instead betting with real money that rates will remain unchanged throughout the year. This shift started last Friday when the US employment data was released, surprising the market: the unemployment rate surprisingly did not rise but instead fell, directly shattering expectations of a rate cut.

Now, the market has almost completely priced out the possibility of a rate cut in January, and traders are continuously pushing back their expectations for subsequent rate cuts. Rate strategist David Robin’s latest assessment is: “Based on the data, the Federal Reserve will hold rates at least until March, and the further out you look, the clearer it becomes—rate cuts are basically unlikely.”

Interestingly, market behavior most accurately reflects genuine thoughts. In options tied to the Federal Reserve’s benchmark interest rate, new positions are mainly concentrated in March and June contracts, clearly hedging against the risk of further delay in rate cuts. There are also some bets on longer-term horizons, entirely betting that the Fed will stay put all year. Robin also added a candid remark: “Whether you believe the Fed will stay put or not, these trading costs are not high. As a prudent risk manager, why not hold them?”