Will the Fed do a rate cut greater than 25bps this year?
Yes refers to: In 2026
Short Answer
Both the model and the market expect the Fed to do a rate cut greater than 25bps in 2026, with no compelling evidence of mispricing.
1. Executive Verdict
- Octagon deep research encountered critical internal server errors.
- A significantly weaker labor market would increase rate cut likelihood.
- Faster disinflation below 2% target drives greater rate cuts.
- An economic recession increases probability of a larger Fed cut.
- Major financial market instability could prompt a greater rate cut.
- Recent market movements show significant volatility and price swings.
Who Wins and Why
| Outcome | Market | Model | Why |
|---|---|---|---|
| In 2026 | 27.0% | 26.5% | Stubborn inflation could delay aggressive Fed rate cuts until 2026. |
Current Context
Current Federal Reserve discussions and expert opinions generally indicate a lean against rate cuts greater than 25 basis points (bps) in 2026 under present economic conditions. The Federal Reserve maintained its benchmark interest rate at 3.5% to 3.75% following its January 2026 meeting, having previously enacted three 25bps cuts in late 2025 [^]. Minutes from that meeting revealed that while most participants favored holding rates steady, some governors, including Stephen Miran and Christopher Waller, voted for a 25bps cut [^]. Policymakers also acknowledged a "two-sided" outlook, suggesting potential rate hikes if inflation remains persistently above the 2% target [^]. Economists at BofA Securities project two 25bps rate reductions in June and July but argue they are "not warranted" given a bullish U.S. economy and firm consumer demand [^]. Similarly, J.P. Morgan Global Research no longer anticipates any Fed rate cuts in 2026, expecting rates to remain steady [^].
Expert opinions show divergence on the necessity and timing of 25bps cuts, with a strong consensus against larger reductions unless a severe economic downturn occurs. Those against larger cuts or in favor of holding rates include J.P. Morgan Global Research [^], BofA Securities [^], and Chicago Fed President Austan Goolsbee, who emphasizes prioritizing inflation control and notes recent strong labor market and inflation data make near-term cuts unlikely [^]. Conversely, Goldman Sachs Research, as of December 2025, projected two 25bps cuts in March and June, and Bankrate anticipated three 25bps cuts totaling 0.75 percentage points for 2026 [^]. The sole direct reference to cuts greater than 25bps comes from UBS (December 2025), which stated that in a "downside scenario" with a sharp economic slowdown, the Fed could cut rates by 200-300bps in 2026 [^]. Key economic data points under close watch include December 2025 year-over-year CPI at 2.7% and a reported rise in the Fed's preferred core PCE measure, along with a January 2026 unemployment rate of 4.3% and Q3 2025 GDP growth at 4.3% [^].
Upcoming events and persistent economic concerns contribute to market uncertainty regarding the future path of interest rates. The next Federal Open Market Committee (FOMC) meeting is scheduled for March 17-18, 2026, followed by several others throughout the year [^]. Markets are also awaiting critical economic data releases, including PCE, CPI, GDP reports, and labor market statistics [^]. Potential shifts in Fed leadership, such as the expiration of Chair Jerome Powell's term in May 2026 and discussions about a new chair advocating for lower rates, add to the complexity [^]. Common concerns revolve around the consistent return of inflation to the 2% target, the true health of the labor market, the Fed's balancing act between inflation control and employment, and the influence of political pressures [^]. Currently, market sentiment and analyses, including the CME FedWatch Tool, indicate that a pause or 25bps cuts are most likely, with significant cuts beyond 25bps only considered in the event of an unexpected and severe economic downturn [^].
2. Market Behavior & Price Dynamics
Historical Price (Probability)
Outcome probability
Date
This market exhibits a highly volatile, sideways trading pattern, with the probability of a large rate cut fluctuating sharply between 6% and 60%. The most significant price action occurred in late January and early February 2026, demonstrating extreme sensitivity to Federal Reserve personnel and policy announcements. A massive 36 percentage point drop on February 1, from 59% to 23%, directly followed the Fed's decision to hold interest rates steady, signaling a more hawkish-than-expected stance to traders. This move effectively erased a 29 point spike the day prior, which was driven by the nomination of the perceivedly dovish Kevin Warsh as the next Fed Chair. Subsequent hawkish commentary from Fed officials on February 10 triggered another notable 8 point drop, reinforcing the market's reaction to official Fedspeak.
The chart suggests clear technical levels have formed amidst the volatility. Strong resistance was established near the 60% mark, a ceiling the market tested and failed to break during the peak optimism surrounding the Warsh nomination. Conversely, a support floor appears to have formed in the low 20% range, a level the market fell to after the Fed's January hold decision and is currently trading near again at 26%. The total volume of over 93,000 contracts indicates significant trader engagement. The large price swings on specific dates suggest these key news events were accompanied by high volume, reflecting strong conviction behind the moves. Overall, the current price of 26% indicates that market sentiment is bearish on the prospect of a large rate cut, aligning with the Fed's recent communications, but the chart's history shows this sentiment can reverse rapidly on any single piece of dovish news.
3. Significant Price Movements
Notable price changes detected in the chart, along with research into what caused each movement.
📉 February 11, 2026: 8.0pp drop
Price decreased from 38.0% to 30.0%
Outcome: In 2026
What happened: The primary driver of the 8.0 percentage point drop in the "Will the Fed do a rate cut greater than 25bps this year?" prediction market on February 11, 2026, was the series of hawkish public statements made by influential Federal Reserve officials on February 10, 2026 [^]. Dallas Fed President Lorie Logan and Cleveland Fed President Beth Hammack, both 2026 voting members, publicly indicated the Federal Reserve might be at the end of its easing cycle and expressed reluctance to support further interest rate cuts, citing persistent inflation and diminished downside risks to the labor market [^]. These remarks, signaling a preference for maintaining current rates or a slower pace of cuts, directly preceded and significantly reduced market expectations for aggressive rate cuts, thus leading the price movement [^]. Social media activity, specifically public statements from key figures, was the primary driver of this market movement [^].
📈 February 02, 2026: 10.0pp spike
Price increased from 24.0% to 34.0%
Outcome: In 2026
What happened: The primary driver of the 10.0 percentage point spike in the "Will the Fed do a rate cut greater than 25bps this year?" prediction market on February 2, 2026, was likely President Donald Trump's nomination of Kevin Warsh as the next Federal Reserve Chair around February 1-2, 2026 [^]. This high-profile nomination, immediately following the Federal Open Market Committee's (FOMC) "dovish hold" in January where rates were kept unchanged, was widely disseminated across news and social media [^]. While Warsh has been described as having "hawkish" past views, his stated support for "2026 easing on productivity gains" likely fueled speculation that his appointment could lead to more aggressive rate cuts than previously anticipated, aligning with President Trump's persistent demands for lower interest rates [^]. Social media activity would have acted as a contributing accelerant, rapidly spreading the news and interpretations of Warsh's potential impact on monetary policy [^].
📉 February 01, 2026: 36.0pp drop
Price decreased from 59.0% to 23.0%
Outcome: In 2026
What happened: The primary driver of the 36.0 percentage point drop in the prediction market "Will the Fed do a rate cut greater than 25bps this year?" on February 1, 2026, was the Federal Reserve's decision on January 28, 2026, to hold its benchmark interest rate steady [^]. This decision, announced after the January 27-28 Federal Open Market Committee (FOMC) meeting, paused a series of three consecutive 25 basis point rate cuts from late 2025, signaling a more cautious and less aggressive monetary policy stance [^]. This move by the Fed significantly reduced the perceived likelihood of a single rate cut larger than 25 basis points in 2026 [^]. Social media activity from key figures did not appear to be a primary driver for this specific price movement, with relevant posts and influential analyst comments occurring after the February 1st drop [^].
📈 January 31, 2026: 29.0pp spike
Price increased from 30.0% to 59.0%
Outcome: In 2026
What happened: The primary driver of the 29.0 percentage point spike in the prediction market "Will the Fed do a rate cut greater than 25bps this year?" on January 31, 2026, was the announcement that President Trump nominated Kevin Warsh to succeed Jerome Powell as the next Federal Reserve Chairman [^]. This nomination, occurring precisely on the day of the market movement, significantly shifted expectations for future monetary policy, as Warsh is known to advocate for interest rate cuts [^]. While no specific viral social media posts directly led the price spike, the news of Warsh's nomination, coupled with President Trump's history of publicly advocating for aggressive rate cuts, likely served as a significant accelerant through widespread discussion and interpretation on social media platforms [^]. Consequently, social media acted as a contributing accelerant, but the nomination itself was the foundational catalyst [^].
📈 January 30, 2026: 12.0pp spike
Price increased from 23.0% to 35.0%
Outcome: In 2026
What happened: The 12.0 percentage point spike in the prediction market on January 30, 2026, was primarily driven by a confluence of social media activity from a key political figure and significant dovish statements from a Federal Reserve official [^]. On January 30, President Trump posted on social media, criticizing Fed Chair Powell for maintaining interest rates and praising his nominee for Fed Chair, Kevin Warsh, as someone who "will never let you down," signaling a strong desire for more aggressive rate cuts [^]. Concurrently, Federal Reserve Governor Christopher Waller publicly explained his dissent from the January 28 FOMC decision to hold rates, stating that current policy was "far too restrictive" due to a "fragile labor market" and advocating for a "quick shift toward a neutral policy" (closer to 3% from the current 3.5%-3.75%), implying potential cuts greater than 25bps [^]. This direct political pressure via social media, coupled with substantive economic reasoning from a Fed insider, coincided with the price move, with social media serving as a contributing accelerant by rapidly disseminating Trump's influential statements [^].
4. Market Data
Contract Snapshot
This market resolves to YES if the Federal Reserve implements a rate cut greater than 25 basis points during 2026. It resolves to NO if the Fed does not enact any rate cut exceeding 25 basis points by the end of 2026. No specific settlement conditions or additional key dates are provided beyond the 2026 timeframe.
Available Contracts
Market options and current pricing
| Outcome bucket | Yes (price) | No (price) | Implied probability |
|---|---|---|---|
| In 2026 | $0.27 | $0.74 | 27% |
Market Discussion
Initially, market participants and some experts anticipated multiple Federal Reserve rate cuts in 2024, with some models forecasting up to six 25-basis-point (bps) reductions starting as early as March [^]. However, the debate has shifted towards fewer and later cuts, with many economists revising predictions to one to three cuts, primarily 25 bps, or even none at all, citing persistent inflation and a resilient labor market [^]. While some scenarios suggest more aggressive 50 bps cuts could occur if the labor market significantly weakens, the prevailing discussion now centers on the timing and necessity of any cuts rather than larger-than-25bps reductions due to inflation concerns and the Fed's cautious, data-dependent approach [^].
5. Why Was Research On This Specific Question Unavailable?
| Research Status | Failed (Internal Server Error) |
|---|---|
| Data Extraction | Not possible due to error |
| Findings Availability | None available |
The research query encountered an internal server error. This technical issue prevented the successful retrieval and processing of any information pertaining to the specific question regarding median FOMC voters (e.g., Jefferson, Williams) and their response to the Chicago Fed's National Financial Conditions Index (NFCI) moving above +0.5. The process resulted in a complete lack of research findings for the intended analysis.
No data or insights were generated from the attempted research. Consequently, no key data points, summarized insights, or detailed explanations could be produced concerning the historical threshold in a key financial stress indicator required for these FOMC voters to pivot their language towards 'aggressive' or 'forceful' easing actions, which would be a prerequisite for a greater than 25 basis points cut.
Re-attempting the query is necessary to obtain the information. To acquire the requested data, the research query must be re-executed once the underlying server issue that caused this technical failure is fully resolved.
6. What Information Was Retrieved Due to the Research Error?
| Research Status | Failed |
|---|---|
| Reason for Failure | Internal Server Error |
| Data Availability | None |
Research query failed due to an internal server error. The research query, which sought to determine the implied probability of a severe corporate credit downturn in 2026 as priced into the term structure of the Markit CDX North American High Yield Index, encountered an internal server error during its execution. This technical issue directly prevented the successful retrieval of any relevant information or data points required for analysis.
No specific findings or data are currently available. Consequently, the system was unable to process the request and fetch the necessary content from its research sources. As a result, no specific findings, metrics, or detailed summaries concerning a potential spread widening beyond 700 basis points—a level historically associated with deep recessions necessitating an emergency Fed response greater than 25 basis points—can be provided at this time.
7. Why Was Research Information Not Available for This Query?
| Research Outcome | Internal Server Error |
|---|---|
| Data Availability | Not Retrieved |
| Processing Status | Failed to complete |
A critical system error prevented data retrieval. The research query encountered an 'Internal Server Error', which entirely prevented the retrieval of any relevant data or findings for the requested question. As a direct consequence, no information pertinent to the options market for industrial commodities could be extracted or summarized.
No specific research output could be produced. Due to this critical system error, it was not possible to generate the requested subtitle, key data points, or detailed paragraphs that would typically be based on actual research content.
8. What Error Occurred During the Research Retrieval Process?
| Research Status | Failed (Internal Server Error) |
|---|---|
| Data Availability | None (System failure) |
| Error Type | Internal Server Error (Research system) |
Research on the AI productivity shock scenario remains unexamined. The requested research, which aimed to explore a contrarian 'productivity shock' scenario where AI-driven productivity gains could lead to 2026 core PCE projections falling below 1.5%, could not be completed. This scenario hypothesizes that such a development might necessitate a significant 'normalization' cut (>25bps) to prevent real rates from becoming excessively restrictive.
System-level failure prevented all requested data retrieval. An internal server error critically prevented the retrieval of any findings or relevant information pertaining to this query. Consequently, no data could be collected or analyzed, meaning no specific data points, insights, or conclusions from economic models (e.g., San Francisco Fed, CBO) could be generated. As a direct result of this system-level failure, no content could be produced regarding the potential for a cut made from strength rather than weakness.
9. Was the Research Question Successfully Answered or Processed?
| Research Outcome | Failed (Internal Server Error) |
|---|---|
| Data Availability | None (System Status) |
| Information Extracted | 0 Points (Research Attempt) |
The research process encountered a critical internal server error. This technical issue prevented the successful retrieval and analysis of any information pertaining to the precise sequence of data prints required to make a >25bps cut a 'live' possibility on the CME FedWatch Tool for a 2026 meeting. A system-level malfunction made it impossible to gather relevant data or formulate an answer regarding historical sensitivity, consecutive negative Non-Farm Payrolls prints, or quarterly GDP contractions.
Consequently, no specific findings or data points were generated. Due to this severe technical failure, no summary paragraphs or conclusive data could be produced from this research attempt. The inability to connect to or process the necessary information means that the requested content, including any statistical analysis, remains unaddressed.
10. What Could Change the Odds
Key Catalysts
The prediction market for a Federal Reserve rate cut greater than 25bps in 2026 is highly sensitive to several key economic indicators and policy shifts. Bullish catalysts, which could increase the probability of such a cut, include a significant weakening of the labor market, marked by a sustained rise in the unemployment rate above January 2026's 4.3% or widespread layoffs [^]. Additionally, faster-than-expected disinflation, with Core PCE consistently dropping below the Fed's 2% target, or an economic recession leading to decreased GDP and consumer spending, would support a larger cut [^]. Major financial market instability, such as a stock market crash, or a dovish shift in Federal Reserve leadership (e.g., a new Chair in May 2026) are also significant factors [^].
Conversely, bearish catalysts would push against a larger rate cut. These include stubbornly high or re-accelerating inflation, potentially exceeding 4% by late 2026 due to factors like tariffs or AI supply bottlenecks [^]. Stronger-than-expected economic growth, persistent labor market strength (with unemployment remaining low), and a hawkish Federal Reserve stance due to continued inflation concerns would also reduce the likelihood of a significant cut [^]. Furthermore, new fiscal stimulus programs or geopolitical risks causing higher inflation, such as escalated trade tensions or renewed conflicts in oil-producing regions, could lead the Fed to maintain a tighter monetary policy [^].
Key dates to monitor before the January 2027 settlement include the monthly Employment Situation reports, CPI, PPI, and PCE price index releases, as well as quarterly GDP reports [^] . Federal Open Market Committee (FOMC) meetings are critical, with monetary policy decisions and Summary of Economic Projections (SEP) expected in March, June, September, and December 2026 [^]. The potential appointment of a new Federal Reserve Chair in May 2026 and the US Midterm Elections in November 2026 also represent significant inflection points for policy direction [^]. Ongoing geopolitical developments, particularly concerning trade and energy, will also be closely watched for their impact on inflation and economic stability [^].
Key Dates & Catalysts
- Expiration: January 01, 2027
- Closes: January 01, 2027
11. Decision-Flipping Events
- Trigger: The prediction market for a Federal Reserve rate cut greater than 25bps in 2026 is highly sensitive to several key economic indicators and policy shifts.
- Trigger: Bullish catalysts, which could increase the probability of such a cut, include a significant weakening of the labor market, marked by a sustained rise in the unemployment rate above January 2026's 4.3% or widespread layoffs [^] .
- Trigger: Additionally, faster-than-expected disinflation, with Core PCE consistently dropping below the Fed's 2% target, or an economic recession leading to decreased GDP and consumer spending, would support a larger cut [^] .
- Trigger: Major financial market instability, such as a stock market crash, or a dovish shift in Federal Reserve leadership (e.g., a new Chair in May 2026) are also significant factors [^] .
13. Historical Resolutions
Historical Resolutions: 1 markets in this series
Outcomes: 0 resolved YES, 1 resolved NO
Recent resolutions:
- KXLARGECUT-25: NO (Jan 01, 2026)
Get Real-Time Research Updates
Sign up for early access to live reports, historical data, and AI-powered market insights delivered to your inbox.
