MW State Street strategist still sees three rate cuts in 2026. The market expects zero.
By Nora Redmond
The Federal Open Markets Committee voted to hold interest rates at Wednesday's meeting.
A strategist at State Street Bank said he was surprised that the market doesn't expect the Federal Reserve to cut interest rates - and is still predicting three cuts this year.
The U.S. central bank voted to hold rates at the current 3.5%-3.75% target at the Federal Open Market Committee's latest meeting on Wednesday. The move was widely expected by Wall Street as oil prices have spiked since the U.S. and Israel first started to strike Iran at the end of February, inflation remains above the Fed's 2% target and the labor market has cooled, with stalling hiring over the past two months.
When asked about how much the market has reduced its expectations for rate cuts by Tim Graff, head of macro strategy for Europe at State Street Bank, Lee Ferridge, head of macro strategy for North America, said: "I was shocked actually to be perfectly honest."
"I think the Fed cuts three times this year. That's where I am. That's where I was before this started. This is where I still am," Ferridge said.
He told the bank's 'Street Signals' podcast that the day before the beginning of the conflict in the Middle East there were two and a half reductions priced in for the Fed and that that dropped to one by the time of recording. As of Thursday, there are no cuts priced in for the rest of the year, per CME's FedWatch tool.
Ferridge said changes in expectations for interest rate cuts across central banks, including at the Bank of England, are "ridiculous." The Bank of England on Thursday held interest rates at 3.75% but traders are now expecting 50 basis points of hikes this year.
"I think, as you say, the textbook and what we've learnt from central banks through history is an oil-price shock is actually seen as more of a growth issue than an inflation issue," he said. "They target core inflation. They don't target headline for a reason - because they can't control oil prices."
Ferridge noted that while higher oil prices have an impact on core inflation, it's relatively small, citing a Fed paper in 2024 which found that the oil spike resulting from Russia's invasion of Ukraine in 2022 led to an impact of about 6 basis points on U.S. core inflation within around two quarters.
"Up until the last couple of days, the oil price impacts for this conflict were very similar to the early days of what we'd seen in Russia-Ukraine," he said, adding that the Fed still hiked rates that year to battle against inflation.
-Nora Redmond
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(END) Dow Jones Newswires
March 19, 2026 08:08 ET (12:08 GMT)
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