Traders have all but written off any chance of the Federal Reserve cutting interest rates in 2026. CME Fedwatch data now shows a 95% to 98% probability that the central bank will hold rates steady at every meeting this year. The shift comes as the Fed's new chair, Kevin Warsh, inherits an inflation rate of 3.8% — well above the 2% target.
Why the outlook shifted
For months, markets had priced in at least one or two quarter-point cuts by mid-2026. Those expectations evaporated as inflation data failed to cool. Prediction market bettors have put tens of millions of dollars behind the view that the Fed won't move in June — or at any other meeting this year. The betting consensus matches what the CME Fedwatch tool, which tracks futures contracts, now reflects: near-certainty that rates stay put.
What the data shows
The CME Fedwatch probability for no change at the June meeting stands at 97%. The readings for subsequent meetings in July, September, November and December all fall in the 95% to 98% range. That leaves essentially zero room for a cut. Traders aren't pricing in a hike either — just a long pause. The last time markets were this certain about a Fed hold was during the early months of the pandemic, when the central bank slashed rates to near zero and then parked them there.
The inflation challenge for Warsh
Kevin Warsh took over as Fed chair at a moment when price pressures are proving stubborn. The 3.8% inflation rate he inherits is more than a percentage point above the Fed's target. It's also higher than the 3.5% level that former chair Jerome Powell had called 'too high.' Warsh has not yet signaled his policy leanings publicly, but the market's read is clear: no cuts are coming until inflation falls significantly further. Economists note that the Fed's preferred core PCE index has been stuck in the 3.7% to 3.9% range for the past six months.
The new chair will deliver his first rate decision at the May 2026 meeting, followed by the June meeting that traders are already betting will be a no-go. If inflation doesn't budge, the Fed could be on hold for the entire year. That prospect has already pushed long-term bond yields higher and weighed on stock sectors that rely on cheap borrowing, like housing and small-cap industrials.
A key question hanging over the May meeting is whether Warsh will use his first public statement to signal a change in the Fed's reaction function — or simply endorse the current pause. For now, the message from financial markets is unanimous: don't expect a rate cut anytime soon.
