Rates Steady as Market Awaits FOMC Rate Decision

Flash Update: US RATE MARKETS – FRIDAY JANUARY 23, 2026

• UST yields and SOFR swap rates are holding mostly steady this morning as the market looks ahead to the upcoming FOMC rate decision

• Geopolitical tensions have cooled somewhat, giving traders time to “pause and assess” ahead of next week’s Fed meeting

• The stronger-than-expected 3Q GDP revision we saw yesterday is the last “big” economic data we will see before the Fed meeting

• Traders continue to closely monitor geopolitical developments in multiple “hot spots” (Greenland, Europe, Venezuela, Iran)

• Traders will also keep a close eye on developments in the DOJ Criminal investigation into Chair Powell and the US Central Bank

• A SCOTUS ruling on tariffs is now anticipated to come “at some point in January” – the decision could come any day

• The “tariff” ruling could potentially create additional rate volatility as the market reacts to the Supreme Court’s decision

• The US Supreme Court is also currently hearing arguments related to the legality of the Lisa Cook firing

• Fed officials remain subject to the pre-meeting “communications blackout” until 1/29

• The next FOMC rate decision is due Wednesday, January 28, 2026 at 2:00 PM

• Short-end SOFR swap rates are trading up ~1-2 bps this morning, depending on tenor

• Long-end SOFR swap rates are currently trading up ~1-2 bps, depending on tenor

Good Morning – US Treasury yields and SOFR swap rates are holding mostly steady this morning, as traders prepare for next week’s FOMC rate decision and Chairman Powell’s press conference. Yes, the Fed is not expected to cut, but the market will be very focused on what the FOMC, and Chairman Powell have to say. Geopolitical tensions have cooled somewhat, which provides traders time to regroup before the Fed meeting. We don’t see any major economic data until after the FOMC meets, so barring any new geopolitical developments, interest rates are likely to remain in a holding pattern ahead of the Fed meeting.

News the market is tracking includes:

• Next week’s FOMC rate decision. The Fed is widely expected to keep rates steady at the January meeting. However, traders, investors and market participants will be very interested in any “tweaks” to the Fed’s officials statement. Recent Fed-speak has leaned hawkish, so traders will be on the lookout for a hawkish slant to the January statement. Needless to say, the big show next week is likely to be Chairman Powell’s post-meeting press conference. Powell’s speech will likely garner global attention. In light of the DOJ criminal probe, I do expect Chair Powell to address questions about Fed independence and White House meddling head on.

• Geopolitical developments continue to dominate market sentiment. Geopolitical tensions escalated this week, as President Trump notched up the Greenland threats and rhetoric. President Trump’s pledge that he would not “use force” to obtain Greenland was met with some optimism, which cooled-down some of the more immediate global market concerns about an armed conflict. That said, geopolitical tensions continue to run high, and that is not likely to abate anytime soon. Markets will continue to closely monitor the situations in Venezuela, Europe, Iran and Greenland.

• The Supreme Court ruling on President Trump’s tariffs has not yet been released. The ruling was postponed and is now expected to come at “some point in January”. The SCOTUS ruling could definitely have market implications. Currently, market participants and economists believe the Supreme Court will rule against the President. Economists are unsure about the market impact of the decision – either way, the ruling is a potential catalyst for elevated rate volatility. SCOTUS is also currently ruling on the legality of the President firing of the Fed’s Lisa Cook. That ruling is also expected to come in the near term.

• President Trump has “asked” Fannie Mae and Freddie Mac to purchase ~$200 billion in mortgage-backed securities in order to facilitate lower mortgage rates. The market impact is uncertain at the moment, but if this does happen, it could certainly impact rates and the shape of the yield curve, at least in the short-term. We will continue to track this developing story. The President is also working to reduce credit card rates, which may also impact interest rates, consumer sentiment and the direction of the US economy.

• The US Justice Department investigation into the US Central Bank and Chairman Powell is likely to remain a key market focus moving forward. Chairman Powell has been defiant and has pushed back hard on the subpoenas, saying they are “political retribution” for not lowering rates and amount to “intimidation”. He has stated he will not resign. Ultimately, we are in uncharted waters on this – at the least, it is likely to increase volatility and uncertainty while the situation plays out.

• The Fed’s pre-meeting external “communications blackout” is in effect until after the FOMC meeting wraps up on January 28th. Recent Fed-speak has leaned hawkish - the Fed is not expected to lower rates next week. The next time we hear from a Fed official will be Chairman Powell’s post-meeting press conference on 1/28.

Bottom-line, there are many potential market catalysts for traders to monitor and manage at the moment.

SOFR Swap Rate Summary: The 1Y SOFR swap rate is trading up ~1 bp this morning. 2Y and 3Y SOFR swap rates are currently trading up ~1-2 bps. 5Y and 10Y SOFR swap rates are currently trading up ~1-2 bps. The very back-end of the swap curve is currently trading up ~1-2 bps from yesterday’s closing levels. Please note: Market levels can change rapidly – rate cap premiums are subject to a dynamic market that can change frequently.

CHART 1:US RATES SNAPSHOT: 9:15 AM Eastern

*For SOFR Swap Rates & Change-On-Day (In Bps): Refer Two Far Right Columns (SOFR Swap Rates)

UST YIELDS | SWAP SPREADS | SOFR SWAP RATES

Source: Bloomberg, LLP | 9:15 AM NY Rates Snapshot

CHART 2 & 2A: SOFR SWAP RATES STEADY AS MARKET AWAITS FOMC RATE DECISION; GEOPOLITICS WEIGHS ON MARKET

SOFR swap rates are holding mostly steady this morning, as the market awaits next week’s FOMC rate decision. The recent positive economic data has decreased the odds for a Fed rate cut during the first few meetings of the year. Here are the current odds for a Fed rate cut at the next three meetings: January, 2.8%; March, 15.9%; April, 29.7%. Right now, traders do not expect a rate cut in the first quarter of 2026.

I still believe rates will be biased higher until the geopolitical landscape stabilizes. There is still a lot of fear and uncertainty in the market concerning recent geopolitical developments. Stay tuned – developments are likely to come rapidly.

Rates have steadily ticked higher during January, due primarily to an increased UST risk premium and strong economic data. Hawkish Fed-speak also contributed to the uptick in rates this month. Rates across the curve are sitting at the top of the recent 30-day trading range and are threatening to break out to the upside (see below, Charts 2 & 2A) .

For the week, 2Y SOFR swap rates are up ~3 bps (3.422% >> 3.456% now). 10Y SOFR swap rates are up ~4 bps for the week (3.863% >> 3.907% now).

CHART 2:Short-End SOFR Swap Rates – Prior 30 Days

Source: Bloomberg, LLP | 1Y (white), 2Y (blue) & 3Y (orange) SOFR SWAP RATES, PRIOR 30 DAYS

CHART 2A:Long-End SOFR Swap Rates – Prior 30 Days

Source: Bloomberg, LLP | 5Y (green), 7Y (purple) & 10Y (light blue) SOFR SWAP RATES, PRIOR 30 DAYS

Disclaimer: The information provided in this communication is intended for discussion purposes only. Nothing presented in this communication should be taken as a recommendation or forecast. All market data shown is indicative only and subject to change depending on current market conditions. The information in this publication is confidential and is intended for the recipient only.