Rate Cuts in 2026? The Fed's Answer Is a Big, Fat Nothing Burger

The Federal Reserve is almost certainly keeping rates right where they are at the April 29 FOMC meeting. CME Fedwatch data shows a 99.5% probability the FOMC holds at 3.50%-3.75%—up from 88.2% just a month ago, when 12% of traders still dreamed of a cut to 325-350 basis points. Spoiler: those traders are now refreshing their screens for different reasons entirely.

Those dreams are dead.

The shift came after President Trump's prime-time national address this week, where he vowed to strike Iran "extremely hard," threatened to bomb power plants, and acted unconcerned about the Strait of Hormuz. Oil markets disagreed. WTI crude crossed $110-$112 per barrel. Brent settled above $107. Levels not seen since the 2022 Russia-Ukraine shock.

Houston physical oil premiums climbed to $5.50 above futures. The Strait of Hormuz, which moves roughly 20% of global oil daily, has seen Iranian naval actions nearly halt tanker traffic since late February. The IEA coordinated emergency stock releases across 30+ countries—helpful, but not a fix.

Those supply losses flow straight into the Fed's inflation math. The March 18 Summary of Economic Projections revised 2026 PCE inflation to 2.7%, up from the 2.4% estimate in December. Core PCE landed at the same level.

The Fed's median dot still shows one 25-basis-point cut this year. But Powell made clear at the post-meeting press conference that officials need more time to assess whether second-round effects, wage-price spirals, and de-anchored expectations materialize.

Prediction markets are more decisive. Polymarket assigns a 36% probability to zero rate cuts in all of 2026—up from 10% before the war. A single 25bp cut draws 23% odds. Kalshi puts the no-cut scenario at 38.5%, with $2.9 million in trading volume reflecting real-money conviction.

For June 17, CME Fedwatch shows a 96.7% probability of another hold. On March 4, that figure sat at 66.8%, with 30.2% of traders still expecting a cut by June. That easing premium has almost entirely vanished.

Wall Street desks remain more optimistic. Citi still forecasts more than 75 basis points in cuts for the year—though they postponed that prediction by February. Professional forecasters are betting on a de-escalation scenario. Futures traders are pricing the world as it exists today.

Powell has framed the oil shock alongside prior supply disruptions, the pandemic, tariffs, and called Middle East developments "uncertain." The Fed won't move until it has cleaner data. Upcoming inflation readings and the April jobs report will draw close scrutiny.

Meanwhile, Powell's tenure as Chair concludes May 15, 2026. Trump has put forward Kevin Warsh as the next Chair. Powell's separate term as a Governor runs