Societe Generale raised its US growth forecast for 2026 and beyond after strong US labour market data in January. The upgrade reflects a stronger jobs market and other fast-moving indicators of activity.
The Federal Reserve ties its policy choices to the labour market and inflation. With inflation still high and hiring still strong, Societe Generale updated its view of where the Fed funds rate is headed.
The bank now expects just one Fed funds rate cut in 2026, most likely at the June FOMC meeting. It also warns that new data could keep rates unchanged until later in 2026.
The article was produced using an AI tool and reviewed by an editor. It was published by the FXStreet Insights Team, which selects market observations from external experts and adds analysis from internal and external contributors.
The strong January jobs report is making us rethink the Federal Reserve’s path for 2026. Payrolls rose by more than 350,000, far above the 180,000 consensus. This suggests the labour market is still very strong. Along with other high-frequency data, this pushes expected rate cuts further out.
This echoes what happened in 2025, when markets priced in multiple cuts that never arrived. The latest CPI inflation reading is still firm at 3.4%, well above the Fed’s target. That leaves policymakers with little reason to cut soon. The story is changing from “when will cuts start?” to “will we even get cuts before the second half of the year?”
In the next few weeks, interest rate futures are likely to reprice again. The chance of a cut priced into the March and May contracts could drop close to zero. Even the June SOFR futures contract may show lower odds of a cut. We are closing positions that depend on an early easing cycle.
For options traders, more uncertainty around timing usually means higher implied volatility, especially for contracts linked to FOMC dates. Options that protect against rates staying high for longer—or even a surprise hike—will likely become more expensive. Selling volatility in rates has become much riskier.
This also affects equity derivatives, especially in growth sectors that are sensitive to interest rates. Call options on indexes like the Nasdaq 100 may lag as a “higher for longer” outlook pressures valuations. The risk now points to a later Fed move, not an earlier one.
here to set up a live account on VT Markets now
