National Bank of Canada analysts expect the Federal Reserve to restart rate cuts in March and June 2026. They see rising labour market risks, even as growth and inflation stay relatively firm. They also note that OIS markets have re-priced the odds of near-term cuts, and that the FOMC signalled a patient approach in January.
The analysts say a March cut could shift into the second quarter if non-farm payrolls do not weaken soon. They also say the window for easing is tight and likely short, before stronger GDP, renewed hiring, and higher inflation reappear.
Fed Cut Timing And Market Pricing
They expect long-term US Treasury yields to stay mostly range-bound through 2026. They add that Fed balance-sheet tightening is not a major concern, but they also do not expect long-term yields to drop very much.
We think the Federal Reserve is preparing to cut rates, possibly as soon as March, but the outcome is still uncertain. The chance of a March cut implied by OIS markets has fallen from more than 75% last month to about 45% today. This shift followed recent data showing the economy is stronger than expected.
Whether there is a March cut now depends largely on the next Non-Farm Payrolls report. The January report showed a stronger-than-expected gain of 215,000 jobs. That makes it harder to argue the labour market is weak enough to justify an immediate cut. If upcoming employment data does not soften quickly and clearly, the first cut will likely move into the second quarter.
For derivatives traders, this creates a data-driven setup where short-term volatility may be priced too low. Options straddles on short-term interest rate futures could be one way to trade the next jobs report. This approach can benefit from a big move in either direction—either weaker data that supports a March cut or stronger data that delays it.
Range Bound Long End Trades
Further out, we see only a small window for the Fed to ease policy. A similar pattern appeared in 2025, when early weakness was followed by renewed strength, which limited the scope for rate cuts. That suggests that even if cuts start in March or June, they may not last long.
If this is right, long-term Treasury yields should stay range-bound through 2026. Traders may want to be cautious with positions that depend on a major bond rally. Selling volatility on longer-dated Treasury futures or ETFs, using strategies such as iron condors, could work well if yields remain inside a steady trading range.
Create your live VT Markets account and start trading now.
here to set up a live account on VT Markets now
