Markets Reassess Fed Path After Strong Start To 2026

Global markets traded cautiously on January 7 as investors reassessed expectations for Federal Reserve policy following the strong start to the year. After early-January inflows lifted equities and pressured the dollar, momentum slowed as traders awaited clearer signals from upcoming U.S. economic data.

U.S. equity indices moved sideways, with gains in cyclical sectors offset by profit-taking in technology stocks. Investors appeared reluctant to extend risk exposure ahead of key labor-market releases, which are expected to play a central role in shaping the Fed’s near-term outlook.

Bond markets reflected the uncertainty. Treasury yields edged slightly higher, suggesting markets are tempering expectations for rapid rate cuts despite softer growth signals late last year. The yield curve remained relatively flat, indicating ongoing caution about the economic trajectory in 2026.

In FX markets, the U.S. dollar stabilized after recent weakness, finding support against the euro and yen as traders adjusted positioning. Commodity-linked currencies were mixed, tracking uneven moves in energy and metals prices.

Gold held near recent levels, supported by lingering macro uncertainty but capped by reduced safe-haven demand amid steady equity markets. Oil prices drifted lower as traders weighed early-year demand optimism against ample global supply.

For traders, the session underscored a key theme emerging in early 2026: markets are no longer trading purely on rate-cut hopes but are increasingly sensitive to incoming data. The next round of U.S. employment and inflation figures will be critical in determining whether the Fed can move toward easing sooner—or remains cautious in the face of resilient economic conditions.