Expectations that the Federal Reserve will hold off on further interest rate reductions in January 2026 have surged, with betting market Polymarket raising the probability from 75% a week ago to 86%, reflecting intensified speculation of a pause even as core inflation hits its lowest point since March 2021.
Fed Chair Jerome Powell is poised to halt additional cuts, a move widely anticipated by financial markets. Yet, CME FedWatch Tool’s readings from fed funds futures continue to signal that two reductions in borrowing costs remain likely by the close of 2026.
The shift comes as the U.S. economy delivered robust growth in the third quarter of 2025. Data from the Commerce Department’s Bureau of Economic Analysis—released 43 days later than scheduled following a government shutdown—revealed gross domestic product expanded at a 4.3% annual rate, surpassing the 3.3% advance projected by economists in a Reuters survey and building on the 3.8% gain logged in the prior quarter.
A significant portion of the quarter’s vigorous consumer activity was spurred by a surge in purchases ahead of the September 30 deadline for federal tax credits on electric vehicles, as buyers rushed to benefit before the incentives lapsed. Household spending for the period increased 3.5%, accelerating from a 2.5% rise in the previous quarter.
Despite the strong expansion, inflationary pressures persisted during the July-September period. The personal consumption expenditures (PCE) price index—closely watched by policymakers—rose at a 2.8% clip, with the core measure, which strips out volatile food and energy costs, climbing 2.9%.
