What Could Shift the Market's Rate-Cut Expectations This Week

Market participants are closely watching this week’s economic calendar as a potential inflection point for US monetary policy. According to Charu Chanana, Chief Investment Strategist at Saxo Bank, employment figures and inflation readings will be released in rapid succession—creating the conditions for swift interest rate repricing.

The backdrop is straightforward: the Federal Reserve initiated its cutting cycle recently, with expectations for just one additional rate cut throughout 2026. However, the broader market is pricing in at least two reductions next year, signaling a meaningful divergence between official guidance and investor sentiment.

Where the real volatility could emerge:

If incoming data surprises on the soft side or meets forecasts, the soft-landing narrative remains intact. Yet this scenario may prove insufficient to spark an aggressive risk-on move in equities. The true flashpoint lies elsewhere.

A hotter-than-expected inflation print or stronger employment report would trigger a different outcome: bond yields would climb, and growth stocks—particularly those with extended duration exposure—would face immediate selling pressure. This represents the hawkish tail risk that traders are actively hedging against this week.

The market is essentially positioned for either a gentle confirmation of economic resilience or a reality check on rate-cut assumptions. The data arriving over the next few days will determine which narrative prevails.