TD Securities expects the Federal Reserve to keep interest rates on hold for longer, leaving markets focused on when and how many future cuts may arrive. Pricing currently implies 2bp of cuts in March 2026 and 5bp in April 2026, with scope for April expectations to rise further.
Since 2025, market pricing has generally matched FOMC outcomes, with errors of no more than 2bp. Across meetings where the Fed kept rates unchanged, the average gap between pricing and the decision was 0.6bp over the past 5 years.
Market Focus Shifts To Path Of Cuts
Uncertainty has shifted from the next decision to the path of cuts across the cycle. The terminal rate has stayed around 3.1% since mid-2025.
After the first cuts in 2024, Fed holds usually led markets to remove expected cuts at the next meeting rather than delay them. Pricing for later meetings has been less consistent.
The Fed’s limited use of forward guidance has made it harder to deliver “dovish holds”. After decisions, meetings with higher cut probabilities tended to see larger repricing.
The Federal Reserve is signaling it will keep interest rates on hold for longer, shifting market uncertainty towards when cuts will actually begin. For several months now, we have seen the terminal rate stay anchored around 3.1% since the middle of 2025. This stability suggests the Fed is in no rush to act.
Trading Implications For April 2026 Pricing
Recent economic data supports this cautious stance and makes near-term rate cuts less likely. The January 2026 Non-Farm Payrolls report showed a robust addition of 225,000 jobs, while the unemployment rate held firm at 3.6%. Furthermore, the most recent Consumer Price Index (CPI) reading for January showed core inflation is still sticky at 2.9%, well above the Fed’s target.
Currently, the market is pricing in small cuts of 2 basis points for the March meeting and 5 basis points for April. Given the strong jobs market and persistent inflation, these expectations seem overly optimistic. This presents an opportunity to fade, or bet against, any further increase in the odds of an April rate cut.
We have observed this pattern before, starting with the initial rate cuts back in 2024. Throughout 2025, whenever the Fed held rates steady, it struggled to deliver a dovish message, causing markets to reprice future expectations. The market has a tendency to get ahead of itself, pricing in cuts that the data does not yet justify.
A practical strategy in the coming weeks would be to position for rates remaining higher for longer than the market currently anticipates. This could involve selling derivatives like Secured Overnight Financing Rate (SOFR) or Fed Fund futures contracts tied to the April 2026 meeting. This trade profits if the market reprices to expect fewer, or no, cuts by that time.
