Fed to Hold Rates Through 2026, TD Securities Forecasts

TD Securities now expects the Federal Reserve to hold its benchmark interest rate steady through the end of 2026. The call directly shapes the path of short-term yields, the dollar, and forex pairs where rate differentials are the primary driver.

The headline take is straightforward: no further rate cuts in 2025 and an entire calendar year of unchanged policy in 2026. The more useful read is that the persistence of a 4.25%–4.50% fed-funds range keeps the dollar’s yield premium intact longer than markets had priced. That rewrites forward expectations for carry trades, emerging-market currencies, and the euro–dollar leg.

The Steady-Rate Call and Dollar Transmission

TD Securities’ view signals a higher-for-longer framework that entrenches the greenback’s yield advantage. When the Federal Reserve stands still, the dollar draws support from a stable and elevated short-end rate while other central banks continue easing cycles. The transmission runs through the front end of the curve: a flat fed-funds path holds 2-year Treasury yields near their current level, which in turn props up the DXY relative to currencies where policy rates are already falling.

The call produces three direct market consequences:

• TD Securities expects the Fed to keep rates at the 4.25%–4.50% target range through the entirety of 2026.
• The projection implies zero additional cuts over the next 21 months, extending the highest G10 real policy rate well past what the forward curve had been discounting.
• A prolonged yield advantage reinforces carry incentives in USD/JPY and USD/CHF, while making EUR/USD a battleground between a stationary Fed and a structurally easing European Central Bank.
• The forecast runs counter to earlier pricing that assumed at least one cut in late 2025, forcing a repricing in rate-sensitive FX pairs and in short-dated bond markets.

For forex traders, the mechanism is about the rate differential itself. If the ECB, Bank of England, and Bank of Canada cut again in 2025 while the Fed does not, the spread widens further. That spread feeds directly into EUR/USD, which frequently tracks the U.S.-euro two-year yield gap. A wider gap pushes the pair lower; the TD forecast suggests that the gap will stay wide rather than compress.