Market Expects Fed to Hold Rates in January, Options Market Increases Bet on Fed Standing Pat All Year

**Jan. 14 – More options traders are ruling out expectations of a Fed rate cut in 2026, instead betting the central bank will hold interest rates steady for the full year. The trend dates back at least to last Friday, when U.S. employment data showed an unexpected drop in the unemployment rate.** **Market pricing has all but eliminated the chance of a Fed rate cut this month, pushing more traders to delay their forecasts for a cut in the coming months. David Robin, interest rate strategist at TJM Institutional Services, noted: “From a data standpoint, the probability the Fed holds rates unchanged at least through March has risen—and as each meeting passes, the likelihood of rate stability grows.”** **Options flows tied closely to the Fed’s short-term benchmark rate have recently sent a more hawkish signal. New option positions are concentrated mainly in March and June contracts, hedging against ongoing delays to the Fed’s next rate cut. Positions targeting longer-dated contracts are expected to benefit if the Fed keeps rates unchanged all year.** **“The cost of these trades is low regardless of whether the market thinks the Fed will stand pat,” Robin said. “As a prudent risk manager, you’d want to hold positions like these.”** (Source: FX678)