A few months ago, the question was how many times the Fed would cut, while the question now is whether it will move at all.
Futures traders have flipped from expecting cuts to expecting steady rates through year-end, with a small chance of a hike, per analysis from The Motley Fool. Schwab's house view is still penciling in two or three more 25-basis-point cuts, but the bond market has clearly downgraded the odds.
Inflation did not cooperate.
Core PCE (the Fed's preferred gauge) was running at 3.0% year over year in February 2026, with headline CPI hitting 3.3% in March as energy prices climbed during the Iran conflict. Powell noted at last month's Fed meeting that longer-term inflation expectations have moved higher this year, with the median FOMC projection now sitting at 2.7% for 2026.
That is well above the Fed's 2% target and not the kind of path that gives Powell room to cut.
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The shift in rate expectations is doing exactly what Warren Buffett warned about in November 1999.
His line from a Fortune piece: "These act on financial valuations the way gravity acts on matter. The higher the rate, the greater the downward pull." Twenty-six years later, Jamie Dimon used almost the same image in his April 2026 letter: "Interest rates are like gravity to almost all asset prices."
When yields on safe Treasury bonds go up, stocks have to compete by getting cheaper.
Schwab's fixed-income team still expects cuts, just fewer of them.
Their base case is that the Fed lowers the target range to 3.0% to 3.5% over the next year, taking the funds rate down with two or three quarter-point moves. Beyond that, they do not see much more room, with the team writing: "We believe 3% is likely to be a floor."
The longer end of the curve is where it gets interesting, with Schwab projecting 10-year Treasury yields likely staying around 3.75% even as the Fed cuts. There is also a real chance of bouncing back toward 4.5%.
The takeaway: intermediate-term bonds get to lock in roughly 4% income, but big price gains are not on the menu.
The next move is data-driven.
A weaker labor market would push the Fed to cut, while a sticky inflation print would force it to hold (or worse, hike). The market has built its current call on the assumption that growth slows enough to let the Fed ease but not enough to break credit.
That balance is exactly the one Dimon called "the skunk at the party," and it is what investors will be tracking all year.
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