Insights 
VT 
The market has adjusted expectations, removing 60 basis points of Federal Reserve easing anticipated for the upcoming year. Initially, two weeks ago, there were expectations for 131 basis points in easing by the April 2026 FOMC meeting.
Currently, this forecast has decreased to 71 basis points as the market responds positively to the reduction in US-China tariffs. There has been further movement with a September rate cut once fully priced in, now reduced to 91%.
Implications On Risk Assets
This adjustment benefits risk assets, as it implies considerable support from the Federal Reserve, in addition to a potential reappearance of economic policies similar to those previously associated with Trump. The situation for the US dollar is more complex; any economic weakness could trigger a sharp adjustment in interest rates.
What the existing section is pointing out, in fairly clear terms, is that traders and analysts had expected considerably more rate cuts from the US Federal Reserve—specifically around 131 basis points by April 2026. In real terms, that’s over 1.25% worth of rate reductions. But that has now been dialled back to just 71 basis points. So, while cuts are still forecast, they’ll likely be smaller and slower to come through. Most of that shift has come in the past fortnight.
The change in sentiment seems to be driven, at least partly, by a better tone in trade between the US and China. Removal of tariffs improves business conditions and lifts optimism across global markets. The pricing of a rate cut as early as September was viewed as close to certain—above 90% probability—but that figure has also eased off. The market now treats it as only likely, not definite.
For those of us watching how this all plays into risk assets, the general takeaway is that equities and similar positions may find a firmer footing. Monetary policy isn’t turning as restrictive as feared. There may still be less easing but not an abrupt halt. Even with reduced expectations, central bank support remains—for now.
Powell’s central bank hasn’t shut the door on action. Rather, it’s taking time. And if the prospect of lower tariffs continues to bolster sentiment or even raises growth potential, that could further push market pricing of cuts further out. However, we also reckon that any bump in jobs data or wages might see these figures retreat again. It’s clear the pricing is heavily data-dependent.
Considerations For Currency And Rates
We also have to keep in mind how sensitive the dollar remains to what’s happening underneath, particularly if incoming data suddenly skews soft. In that case, the dollar could be under renewed pressure not from external trade fears, but from rate cuts being brought forward again. That’s a real risk.
From our perspective, the shift in forward rates demands closer hedging reviews. Option skew has been stable but any surprise below-target print on inflation, or another break in consumer data, could cause another rethink. At the margin, we lean into flexibility—make room for both scenarios without leaning too heavily on one forecast holding up.
Yields have reset lower near the front end but the move has not yet translated into a strong re-rating of long-dated curves. So, in terms of positioning, we favour low-delta expressions and calendar trades that offer payoff if implied volatility picks up. Structurally, the asymmetry supports layered entries, especially as rate paths slide into a more modest channel.
We continue to monitor short-term interest rate futures, particularly SOFR, which has given up some of its earlier conviction. That in itself suggests confidence is shaky. Until the data tells a different story—or the Fed signals a stronger intent—there’s reason to be measured but not passive.
On balance, the pricing of policy is not alarmist, but the revision has been fast. We’d caution against front-loading expectations again too quickly. Better to lean into what’s actually priced rather than what seems overdue.
