The Fed Is in No Rush to Cut Rates. Here's Why That Matters for Your Money.

Federal Reserve Governor Christopher Waller said Monday that if the February labor market data continues to show strong job creation and low unemployment, it may be appropriate to hold interest rates steady, at least for now. His comments were the latest signal that the Fed is pumping the brakes on the rate cut expectations that briefly dominated market conversations earlier this year.

Markets now price in only about a 57% chance of any rate cut by June. As recently as late 2025, traders were expecting multiple cuts through the first half of 2026. What changed?

A Quick Refresher on Why This Matters

The Federal Reserve controls the federal funds rate, the interest rate at which banks lend money to each other overnight. This rate ripples through the entire economy. When the Fed raises rates (as it did aggressively from 2022 to 2023 to fight inflation), borrowing costs go up for everyone: mortgages, car loans, credit cards, and business loans all become more expensive. When the Fed lowers rates, the opposite happens, borrowing becomes cheaper and the economy tends to get a boost.

After reaching a 23-year high of 5.25-5.50% in 2023, the Fed started lowering rates in late 2024. Many investors expected those cuts to continue aggressively through 2026. That's now looking less likely.

What's Keeping the Fed on Hold?

Two things are making the Fed cautious. First, inflation hasn't fully come down to the Fed's 2% target. Core PCE inflation, which is the Fed's preferred measure, which strips out volatile food and energy prices, came in at 3.0% year-over-year in December, still meaningfully above target. Waller specifically noted that the Fed needs to see "continued progress on inflation" before moving again.

Second, the labor market is still strong. January's jobs report showed healthy job creation and unemployment remained low. A strong labor market means the economy isn't in distress, and therefore the Fed doesn't feel urgency to stimulate it with lower rates.

Tariffs add an additional wrinkle. Higher tariffs tend to push consumer prices up, which would make it even harder for the Fed to hit its 2% inflation target. If the new 15% global tariff sticks, it could keep inflation elevated even as economic growth slows, a challenging scenario for policymakers.

What This Means for Your Money

If you have a variable-rate loan (including a credit card, a home equity line of credit, or an adjustable-rate mortgage) the rate you're paying is likely closely tied to the Fed's benchmark rate. Fewer rate cuts means those rates stay higher for longer.

For savings accounts and CDs, higher rates are actually good news, as you're earning more on your cash than you were a few years ago. Many high-yield savings accounts are still paying around 3-4% annually, well above the historical norm. If the Fed starts cutting aggressively, those rates will come down.

For the stock market broadly, higher rates mean the competition from "safe" investments like Treasuries stays elevated, reducing the premium investors are willing to pay for risky assets like stocks. That's part of the reason mega-cap tech stocks, which trade at high valuations, have been under pressure: when you can earn 4%+ “risk-free” in a Treasury bond, paying 30-40x earnings for a growth stock requires a lot more confidence.

Sources: Yahoo Finance, CNBC, Federal Reserve, Bloomberg