Markets Slide as Fed Signals Slower Path to Rate Cuts in 2026

The S&P 500 dropped 1.4% after minutes from January's FOMC meeting revealed policymakers are in no rush to ease, citing stubborn services inflation and a resilient labor market.

U.S. equity markets sold off sharply on Wednesday after the Federal Reserve released minutes from its January policy meeting, signaling that officials see little urgency to resume cutting interest rates despite softening consumer prices. The S&P 500 fell 1.4%, the Nasdaq shed 1.9%, and the Dow Jones Industrial Average declined 489 points as investors rapidly repriced expectations for monetary easing this year.

The minutes, covering the January 28–29 FOMC meeting, showed that nearly all participants agreed the committee could afford to be "patient" before adjusting the policy rate further. Officials noted that core services inflation — which excludes housing and energy — remains elevated at 3.8% annualized, well above the 2% target. Several members expressed concern that premature easing could reignite price pressures in an economy that added 256,000 jobs last month.

Markets had entered 2026 pricing in as many as three quarter-point cuts by year-end. Following Wednesday's release, futures markets shifted to reflect just one cut, most likely in the fourth quarter. The two-year Treasury yield, which closely tracks rate expectations, jumped 9 basis points to 4.43% — its highest level since November.

Rate-sensitive sectors bore the brunt of the selloff. The real estate sector fell 2.7%, its worst single-day performance in six weeks, while utilities dropped 2.1%. Technology stocks also retreated broadly, with megacap names including Nvidia, Microsoft, and Alphabet each declining between 1.5% and 2.4%.

Not all assets suffered. The U.S. dollar strengthened against a basket of peers, with the DXY index rising 0.6% to 107.3. Gold slipped 0.8% to $2,841 per ounce as higher real yields reduced the appeal of the non-yielding metal. Crude oil bucked the trend, rising 0.4% amid ongoing supply concerns in the Middle East.

Fed Chair Jerome Powell is scheduled to testify before the Senate Banking Committee next Tuesday, where he is expected to reiterate the "data-dependent" stance outlined in the minutes. Analysts say the next major catalyst for rate expectations will be the February CPI print, due March 12. A hotter-than-expected reading could push market pricing toward zero cuts for 2026, while a soft number might partially restore the two-cut scenario.

"The Fed is sending a clear message: don't expect them to ride to the rescue anytime soon," said Elena Torres, chief U.S. economist at Barclays. "Unless we see a meaningful deterioration in the labor market or a significant undershoot on inflation, they'll stay on hold well into the summer."