Rabobank’s Senior US Strategist, Philip Marey, expects the FOMC to deliver three 25 bps rate cuts in 2026. He now expects the easing cycle to start in June, not March.
Stronger US labour market data have reduced the need for early cuts. Softer CPI inflation supports cuts later in 2026.
Rabobank Rate Cut Path
Rabobank expects cuts in June and September, and adds a third cut in October. It notes that the September and December meetings include an updated Summary of Economic Projections.
The federal funds rate is currently 3.50–3.75%. Rabobank projects a total reduction of 75 bps in 2026, with the rate ending slightly below neutral.
The article says a new Fed Chair may push for more than one cut. It also says the data are unlikely to push Jerome Powell to deliver more cuts during his remaining months as Chair.
Given the strength of the labor market, we should now assume the Federal Reserve will not begin cutting interest rates in March. The January jobs report showed the economy added a strong 295,000 jobs. The unemployment rate stayed low at 3.6%. That removes any urgency for the Fed to act right away. As a result, short-term derivatives positions that were betting on an immediate cut may need to be unwound.
Trading Implications For 2026
Even so, easing inflation strengthens the case for cuts later this year. The latest CPI report shows headline inflation cooled to 2.3% year-over-year. That clears the way for future easing once the Fed is confident the labor market is stable. The derivatives market is already pricing this in. CME FedWatch probabilities for a March cut have fallen below 15%, while the odds of a cut by June have risen above 70%.
For the coming weeks, this points to selling near-term volatility and buying volatility further out. Options on interest rate futures expiring in March and April look less attractive. Positioning for bigger moves around the June and September FOMC meetings looks more sensible. One way to express this view is with calendar spreads on SOFR options to benefit from the shift in timing.
We also need to watch the Fed leadership transition, as Chairman Powell’s term is expected to end in May. A new Chair may want to set a new policy direction. That supports the idea of multiple cuts in the second half of 2026. In other words, the easing cycle looks delayed, not derailed.
In late 2025, markets rallied sharply when rate cuts first came into view. Strong economic data has cooled that early excitement, but expectations for lower rates are still in place. The key question now is not *if* the Fed will cut, but exactly *when* the cycle begins this summer.
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