Why we don’t think the Fed will hike rates

What the desk is arguing

The desk asserts that the Fed will not hike rates, as the labor market remains fragile and inflation is expected to improve. Citing the internal divisions within the FOMC highlighted by Knightley, where half of the committee members express doubts over the need for further tightening, we plan for a prolonged period of stable rates.

Recent job growth averages, which reflect only modest increases, echo hesitance among Fed officials about any immediate hikes. Non-farm payroll growth from January 2025 to February 2026 averaged just 8,500, despite a recent uptick to 188,000 per month, illustrating this uncertainty surrounding labor market robustness.

The alternative read would suggest an imminent hike based on recent inflation quantifications, but our analysis emphasizes the nuanced economic conditions that the Fed uniquely navigates compared to its global counterparts, which tend to focus singularly on inflation targets.

Where it sits in our coverage

Our current consensus target for the USD is 1.075, with notable forecasts including: - jpmorgan: 1.10 by March 2026 - bofa: 1.04 by March 2026

This position aligns closely with the outlook from jpmorgan, who shares a similar bullish stance on USD strength while diverging from bofa, which anticipates a pullback. Our stance on rate stability positions us at the upper bound of the observed spread.

How other firms see it

Firms like jpmorgan and others appear to align with our thesis, believing in the Fed's hold on rates amidst economic caution. Conversely, bofa stands in opposition, emphasizing a likely need for tightening based on varying inflationary pressures.

As the Fed's decisions unfold, the trajectory of USD and potential implications on related currency pairs such as USD/JPY will be critical to monitor for shifts in sentiment and policy impact.

What the calendar says

With no upcoming calendar events that could impose immediate volatility on the market, the focus remains on reaffirming the Fed's current stance as economic indicators roll out. This stability allows traders to assess the macroeconomic environment without the proximate influence of scheduled market-moving events.