What is the market waiting for? The main intrigue is the Fed's decision today

Today at 9:00 PM, the Federal Reserve will announce its decision on interest rates. At first glance: 95.6% of the market expects a pause, with only 4.4% pricing in a cut. But the real intrigue is not in the decision itself—it’s already determined. The key lies in the signals the Fed will give regarding future steps. The market is pricing in a rate cut in June, but everything depends on how Powell speaks, what the dot plot will look like, and whether there will be a split within the committee.

Market Expectations: 95.6% for a Rate Hold

Current rates are in the 3.50-3.75% range. By keeping them unchanged, the Fed will continue to signal a cautious approach to future moves. This decision is based on a stable but still tense macroeconomic picture. The economy is growing above trend, the labor market remains strong, but inflation still exceeds the 2% target. This balance makes the January meeting a formality regarding the decision, but a critically important event for understanding Fed signals.

Where the true intrigue lies: three possible scenarios

Base case: wait and see

The most likely scenario. The Fed will maintain rhetoric about economic stability, avoid rushing to cut rates, and adopt a wait-and-see approach at least until spring. Such a stance can be seen as a reassuring signal for the dollar and confirmation that rate cuts will not happen before June.

Hawkish scenario: risks from tariffs and fiscal policy

In this case, the Fed will speak more about risks from tariff policies and fiscal stimulus than about slowing inflation. Such rhetoric suggests to the market that only one rate cut per year is possible, or that there will be a pause throughout 2026. The result: the dollar strengthens, and expectations for improved conditions for debt assets and equities shift far into the future. Volatility increases.

Soft scenario: first signal of readiness to adjust

If Powell focuses on slowing inflation, labor market risks, and cooling demand, the market will interpret this as preparation for the first rate cut in June. Even without explicit changes in the Fed’s stance, emphasis on “balanced risks” or “transient inflation” will trigger speculation about a rate cut in April or March. Expectations will start to shift until the Fed takes actual steps.

What to watch for in Powell’s speech

Three key points will determine how market dynamics develop:

1. How inflation is described—as a temporary anomaly or a persistent phenomenon? If Powell emphasizes its transitory nature, it signals readiness to adjust. If inflation is described as persistent and dependent on external factors (tariffs, fiscal policy), it’s a hawkish scenario.

2. Fed’s priority—what’s more important: inflation or the labor market? This emphasis will indicate the urgency of a possible rate cut. If the Fed suddenly talks more about the labor market, it hints at a gradual easing of stance.

3. Number of expected cuts in 2026—one or two? The dot plot will be crucial for reshaping market expectations.

FOMC voting: one dissenter changes everything

If there is more than one dissenting vote, the market will interpret this as a split within the committee. This will not only increase volatility but also amplify reactions to upcoming macroeconomic data releases. Conversely, unanimous votes will signal the Fed’s comfort with the current rate level and readiness to maintain the pause for a long time.

In short: the intrigue is not in the decision itself, but in how the Fed will communicate its future intentions. Markets will listen carefully to every word.