The Fed Held in January. Here's What 6 Analytical Lenses Found.
We ran the January 28, 2026 FOMC decision through 6 macro-specific analytical lenses — rate transmission, inflation regime, financial conditions, labor dynamics, fiscal interaction, global spillover — producing 12 signals, 5 cross-lens themes, and 5 paired conditional markets. This is our first macro analysis.
Held for 3rd consecutive meeting
Stalled in 2.5-3.0% zone
Loosest reading in 12 months
CME FedWatch, Feb 2026
The Federal Open Market Committee held rates at 3.50-3.75% on January 28, 2026 — the third consecutive hold after cutting 75 basis points in H2 2025. The decision was unanimous. The statement language was nearly unchanged. The market shrugged.
But beneath the surface stability, the macro environment contains tensions that the headline rate doesn't capture. Financial conditions are significantly looser than the policy rate implies. Inflation convergence has stalled. The primary transmission channel has shifted from housing to equity wealth effects — a structural departure from prior cycles. And the labor market's apparent stability masks fragility: low hiring, declining openings, and narrow job growth composition.
We built 6 macro-specific analytical lenses to surface these tensions systematically. Each lens consumed FOMC transcripts, staff projections, FRED economic data, and Beige Book observations. Each produced 2 signal assessments with evidence levels. The result: 12 signals that collectively describe a macro environment more complex than the consensus "extended hold" narrative suggests.
Our Assessment
The Fed faces an asymmetric policy environment: cutting rates would significantly move financial asset prices without meaningfully advancing inflation convergence.
Our conditional markets quantify this asymmetry. A surprise March cut would be worth +31pp to dollar weakening and +28pp to mortgage rate relief — but only -1pp to core inflation breaking below 2.5%. The transmission channel has structurally shifted from housing to equity wealth effects, concentrating easing benefits among asset-owning households. Meanwhile, financial conditions are already substantially looser than the policy rate implies. The extended hold appears to be the least-bad option in an environment where the traditional policy tools reach different places than they used to.
View the full signal dashboard, conditional pairs, and cross-lens themes
12 signals. 5 conditional market pairs. Interactive analysis page.
1. Inflation Convergence Has Stalled
Tariff-induced cost-push on core goods is the dominant marginal driver, with demand permissive but not independently accelerating prices.
YoY core inflation is decelerating but convergence has slowed to a near-stall in the 2.5-3.0% zone. Closer to PERSISTENT than TRANSITORY.
Core PCE has decelerated — but it has stopped decelerating. The inflation regime sits in a 2.5-3.0% zone where multiple forces offset: shelter disinflation provides a structural tailwind, but tariff pass-through on core goods and dollar depreciation compound to create a floor. The FOMC staff revised core import price projections higher, confirming the combined effect is material.
Expectations remain anchored across long-term measures, which prevents a reclassification to PERSISTENT. But the path to 2% now appears to extend to mid-to-late 2027 — longer than consensus anticipates.
2. Financial Conditions Are Running Ahead of Policy
NFCI at -0.568 is substantially looser than 3.50-3.75% predicts. Driven by equity wealth, fiscal stimulus, and dollar weakness.
Aggregate bank lending at median since 2011. Consumer delinquencies above pre-pandemic norms prevent EXPANDING classification.
The divergence between the policy rate and actual financial conditions is one of the most significant findings across lenses. Credit spreads are below 5-year medians. Primary issuance markets are fully open. Money market conditions are stable. The economy is experiencing conditions consistent with a substantially lower policy rate.
3. Equity Wealth Effects Have Displaced Housing
Rate changes transmit within historical norms across active channels, but housing is structurally impaired by mortgage lock-in.
The FOMC explicitly attributes consumer spending resilience to gains in household wealth via equities, not housing.
This is a structural departure from prior easing cycles. The traditional monetary transmission mechanism runs through housing: lower rates, lower mortgages, more housing activity, wealth effects. But the mortgage lock-in effect has broken this channel. The mortgage-10Y spread sits at 193bp — compressed from 243bp over 12 months but still elevated. Housing activity remains subdued.
Instead, the FOMC is seeing easing transmit primarily through equity wealth effects. This concentrates benefits among asset-owning households and creates vulnerability to equity market correction — a fragility the traditional housing channel did not carry.
4. The Labor Market Is Stable but Fragile
JOLTS openings-to-unemployed below 1.0. Low-churn equilibrium: low hiring, low quits, low layoffs.
AHE YoY at 3.7%, stalled above 3.0-3.5% target-consistent range. Wage-price feedback loop not active.
5. What Emerged Across All 6 Lenses
Fiscal policy is mildly stimulative, partially counteracting residual restrictive elements of monetary policy.
Dollar depreciation compounds tariff-driven import price inflation. BOJ normalization presents latent risk.
Five themes emerged independently across multiple lenses:
Tariff pass-through is the dominant uncertainty — identified as a material factor by all six lenses, from inflation driver to exchange rate complication to employer uncertainty.
Pronounced distributional asymmetry — rate cuts and loose conditions reach upper-income asset owners and investment-grade corporates, while lower-income consumers, small businesses, and subprime borrowers face tight credit and elevated delinquencies.
Financial conditions diverge from policy rate — NFCI at -0.568 is substantially looser than 3.50-3.75% predicts, driven by equity wealth effects, fiscal stimulus, and dollar weakness.
Equity wealth effects displaced housing — a structural departure from prior cycles that concentrates easing benefits among asset-owning households and creates vulnerability to equity market correction.
Low-churn labor market fragility — surface stability (low layoffs, stable unemployment) masks vulnerability from low hiring, declining openings, and narrow job growth composition.
What Would a Surprise March Cut Change?
CME FedWatch prices a March 2026 cut at 5.9%. Low probability — but the question "what would happen if the Fed did cut?" is precisely what conditional markets are designed to answer. We generated 5 paired markets, each with an IF TRUE (Fed cuts) and IF FALSE (Fed holds) branch, then ran a 90-call model ensemble to estimate probabilities for each branch independently.
The causal effect delta — the difference between the IF TRUE and IF FALSE probability — measures how much the Fed's decision causally affects each downstream outcome.
How This Works
The macro analysis pipeline mirrors our equity analysis architecture but adapted for macroeconomic policy events:
6 macro-specific lenses — each with a defined analytical scope, 2 signal definitions, evidence ladder criteria, and monitoring triggers. The lenses consume FOMC transcripts, staff projections, FRED economic data, and Federal Reserve Beige Book observations.
Conditional market pairs — each market has two branches sharing identical resolution criteria but conditioned on opposite outcomes of the triggering event. The unconditional probability auto-updates when the external probability changes: P(Y) = P(Y|T) × P(T) + P(Y|F) × P(F).
Split-prompt ensemble — 9 independent reasoning perspectives per branch (3 Opus + 3 Sonnet + 3 Haiku), each reasoning from first principles without seeing other models' outputs. Aggregated by median with model agreement measured as 1 minus normalized standard deviation.
Explore the full interactive macro analysis
Signal dashboard, conditional pairs table, cross-lens themes, and overall assessment.