No Rate Cuts in the US: Market Eliminates Bets on Monetary Easing Starting in 2026

• Why Has the Market Priced Out Rate Cuts in the US?
• What About Interest Rates in Brazil?
• Fed's Stance and Market Reactions
• Global Implications of Prolonged High Rates
• What’s Next for Investors?
• FAQs

The fear of a new inflationary shock, fueled by the recent surge in oil prices, has reshaped expectations for the trajectory of interest rates in the United States. As of March 2026, the market has completely ruled out the possibility of any rate cuts by the Federal Reserve (Fed) this year. According to the CME Group's FedWatch tool, traders now see a 93.8% chance of the Fed holding rates steady in its next decision on April 29. For decisions through December 2026, the majority bet remains on maintaining the current rates, with probabilities above 70% for each meeting. Traders are also pricing in potential rate hikes starting in January 2027, with a 71.5% probability of an increase in the first decision of that year. The scenario only shifts in September 2027, where the chance of holding rates stands at 40.8%, compared to 24.5% for a hike and 34.7% for a cut.

Why Has the Market Priced Out Rate Cuts in the US?

The expectation of prolonged high interest rates gained momentum following the Bank of England's (BoE) monetary policy decision. The BoE kept rates at 3.75% but warned that the conflict in the Middle East could lead to short-term inflationary pressures. Some members of the UK's Monetary Policy Committee have even floated the idea of future rate hikes. The European Central Bank (ECB), which also held rates at 2%, raised its 2026 inflation forecast for the eurozone to 2.6%—above its 2% target—citing energy price spikes as a key driver. The war in the Middle East has "significantly increased uncertainty," creating upside risks for inflation and downside risks for economic growth.

What About Interest Rates in Brazil?

In Brazil, the Central Bank's Monetary Policy Committee (Copom) cut the Selic rate from 15.00% to 14.75% on March 18, marking the first easing since July 2025. The MOVE was in line with market expectations, but the Copom emphasized heightened uncertainty due to geopolitical tensions in the Middle East. Analysts from BTCC Research suggest that the Copom will adopt a cautious stance, with slow-paced rate cuts, given the inflationary risks and global volatility. However, if the conflict resolves and oil prices drop significantly, more aggressive cuts could return to the table.

Fed's Stance and Market Reactions

After the Fed's decision to hold rates steady at 3.50%-3.75% on March 18, Chair Jerome Powell acknowledged that a rate hike was discussed in the meeting, reflecting concerns about the economic impacts of the war in Iran. The Fed's Summary of Economic Projections (SEP) and the "dot plot" released alongside the decision indicate only one rate cut in 2026, with the median Fed Funds rate projected at 3.4% by year-end. This suggests a year-end range of 3.25%-3.50%, aligning with the Fed's cautious outlook.

Global Implications of Prolonged High Rates

The shift in expectations has reverberated across global markets, with investors adjusting positions to account for a longer period of elevated rates. Fixed-income analyst Laís Costa from BTCC Research notes that the BoE's decision, coupled with inflation warnings, has stressed global yield curves. In Brazil, interest rate futures (DIs) have risen sharply, reflecting similar concerns. Economists at Daycoval highlight that emerging markets must tread carefully amid heightened asset price volatility and commodity fluctuations.

What’s Next for Investors?

With the Fed, BoE, and ECB all signaling a prolonged pause—or even potential hikes—investors are bracing for a "higher for longer" rate environment. The key driver remains energy prices, which could dictate whether central banks pivot toward tightening or easing later in 2027. For now, the market's message is clear: don’t bet on rate cuts anytime soon.

FAQs

Why did the market eliminate bets on Fed rate cuts in 2026?

The recent surge in oil prices and geopolitical tensions in the Middle East have raised fears of renewed inflation, leading traders to price out rate cuts for 2026.

What is the Fed's projected rate path for 2026?

The Fed's latest DOT plot suggests only one rate cut in 2026, with the median Fed Funds rate ending the year at 3.4%.

How are other central banks reacting?

The BoE and ECB have also adopted cautious stances, with the BoE warning of inflationary risks and the ECB raising its 2026 inflation forecast to 2.6%.

What does this mean for Brazil's interest rates?

Brazil's Copom has begun a slow easing cycle but remains wary of global volatility, particularly from the Middle East conflict.