TD Securities expects the Federal Reserve to keep interest rates unchanged for longer. That keeps markets focused on when cuts will start, and how many will follow. Current pricing implies 2bp of cuts in March 2026 and 5bp in April 2026. April pricing could still move higher.
Since 2025, market pricing has mostly lined up with FOMC outcomes, with errors of no more than 2bp. Over the past 5 years, when the Fed left rates unchanged, the average gap between market pricing and the decision was 0.6bp.
Market Focus Shifts To Path Of Cuts
Uncertainty has moved from the next Fed decision to the overall path of cuts in this cycle. The terminal rate has stayed near 3.1% since mid-2025.
After the first cuts in 2024, Fed “holds” often made markets remove expected cuts from the next meeting, instead of pushing them out to later dates. Pricing for later meetings has been less reliable.
Because the Fed uses limited forward guidance, it is harder for it to deliver a clear “dovish hold.” After decisions, meetings with higher implied cut probabilities usually saw bigger repricing.
The Federal Reserve is signaling it will hold rates for longer. As a result, market uncertainty is now about when cuts will actually begin. For several months, the terminal rate has remained close to 3.1% (since mid-2025). This stability suggests the Fed is not in a hurry to cut.
Trading Implications For April 2026 Pricing
Recent data supports the Fed’s cautious approach and reduces the chance of near-term cuts. The January 2026 Non-Farm Payrolls report showed 225,000 jobs added, while the unemployment rate stayed at 3.6%. The latest CPI report (January) also showed core inflation remains sticky at 2.9%, still above the Fed’s target.
Right now, the market is pricing small cuts of 2bp for March and 5bp for April. With a strong labor market and persistent inflation, those expectations may be too aggressive. That creates a chance to fade any further rise in the odds of an April rate cut.
We have seen a similar pattern since the first cuts in 2024. Through 2025, when the Fed held rates steady, it often struggled to sound dovish. That pushed markets to reprice future expectations. Markets also tend to move ahead of the data, pricing cuts before the numbers support them.
In the coming weeks, one approach is to position for rates staying higher for longer than the market expects. This could mean selling derivatives such as SOFR or Fed Funds futures linked to the April 2026 meeting. The trade benefits if the market reprices to expect fewer, or no, cuts by then.
Create your live VT Markets account and start trading now.
here to set up a live account on VT Markets now
