The United States (US) Federal Reserve (Fed) has dominated the conversation this week. The release of the January Federal Open Market Committee (FOMC) meeting minutes on Wednesday reinforced what markets have quietly suspected: the Fed is not in a hurry to make a rate decision, and the committee is more divided than the headline vote suggests. Against a backdrop of a stronger-than-expected labour market and inflation that is easing but not quite tame, the debate around the next move – and who will ultimately make it – is shaping up to be one of the defining narratives of the first half of 2026.
The data: mixed signals and no clear message
The January Non-Farm Payrolls report, delayed by a partial government shutdown, was released on 11 February, and came in at 130,000 – well above the consensus forecast of around 70,000 and the highest reading since December 2024. US unemployment also eased slightly to 4.3%. The strength of the number was tempered somewhat by a significant downward benchmark revision to 2025 data, which cut the year’s total job growth to an average of roughly 15,000 per month – a far cry from the original estimates, and one of the weakest annual averages in recent memory. The print was therefore a study in contradiction: the January headline strong, but the full-year picture significantly softer.
Consumer Price Index (CPI) data for January followed the labour data on 13 February. Headline inflation came in at 2.4% year-on-year, down from 2.7% in December, with a monthly seasonally adjusted increase of 0.2%. Core inflation continued its gradual descent, offering some comfort to those watching for progress toward the Fed’s 2% target. Taken together, the data told a story of an economy resilient enough to give the hawks room to wait, and soft enough to give the doves reason to push.
The minutes: a committee at odds with itself
The January FOMC meeting saw a 10-to-two vote to hold the federal funds rate at 3.50% to 3.75%, following three consecutive rate cuts in late 2025. The two dissenting votes came from Governors Christopher Waller and Stephen Miran, who argued for an immediate 25-basis point reduction. But the real story was not the vote; it was the language inside the room.
The minutes revealed that “several” policymakers signalled renewed concern over inflation, with some suggesting the Central Bank may need to raise interest rates if inflation remains above target. A vast majority of participants judged that downside risks to employment had moderated in recent months, while the risk of more persistent inflation had increased. Notably, officials dropped language from previous statements that had pointed to increased downside risks to employment – a shift in tone that did not go unnoticed.
Several participants also cautioned that easing policy further against a backdrop of elevated inflation readings could be misinterpreted as a weakening commitment to the 2% inflation objective. One group within the committee was described as embracing a view less open to additional rate cuts, at least in the near term. The picture that emerges is not simply a pause in action – it is a committee that is actively reconsidering its direction of travel.
Following the minutes, US Treasury yields moved higher following the release, with the 10-year climbing above 4.08% and the two-year reaching 3.47%. The dollar held firm. The CME FedWatch Tool currently prices a 90% probability of no rate change at the March meeting, with the first full cut largely priced for June, though that timeline is increasingly fragile.
The wildcard: leadership in transition
Layered over all of this is a question that no data point can fully answer. Jerome Powell’s term as Fed Chair ends in May 2026, with Kevin Warsh the likely successor. Pending Senate confirmation, the transition introduces a meaningful layer of policy uncertainty. A new chair arriving mid-year could shift the communication tone, alter the committee’s risk balance, and complicate the market’s ability to price the rate path with any confidence. Whether Warsh maintains the current “wait-and-see” posture or moves decisively in either direction remains an open question. That ambiguity, alone, has become a market variable.
Looking ahead: dovish or hawkish – and what it means
Two more critical data releases land today. January Personal Consumption Expenditure (PCE) inflation and preliminary fourth quarter US gross domestic product (GDP) growth. These will either validate or challenge the Fed’s current stance and could meaningfully shift rate cut timing expectations.
A hawkish scenario:
If PCE remains sticky and growth holds firm, the first cut will be pushed further into the second half of 2026. If dollar strength persists, pressure mounts on emerging market assets and currencies – including the rand – and markets have to unwind rate-cut pricing that had been building since late 2025. In this scenario, the Warsh transition reinforces a tough-on-inflation narrative, and higher-for-longer rates become the defining market theme.
A dovish scenario:
Softer PCE and weaker growth would firmly secure a rate cut in June. Dollar weakness will follow, supporting risk appetite across emerging markets and provide relief to commodities. Gold, which has held above $5,000/ounce through recent volatility, would likely find renewed momentum in this environment.
For now, the base case remains on hold through the first quarter, with a single cut materialising around mid-year. But the range of outcomes is wide. The dependency on data is real, the committee is divided, and the leadership transition adds a dimension of unpredictability, that markets have not had to manage in some time. Today’s numbers will sharpen the picture but they are unlikely to close the debate.
TURNING TO THE WEEK’S MARKETS
The week’s key themes:
- US 10-year Treasury yield retreats to near 4.07% as US-Iran tensions lift demand for safety
- US equity futures mostly flat after a weaker Thursday session
- Brent crude soars 6% for the week, as Iran-US tension remains in focus
- The US Dollar Index pushes toward 98, marking a roughly 1% weekly gain
Bonds
US rates ended the week softer, with the 10-year Treasury yield hovering around 4.07%, as US-Iran tensions lifted demand for safety. The US military is increasing its Middle East presence while US President, Donald Trump, weighs steps aimed at pushing Tehran in negotiations. Data in the background was mixed: jobless claims hit a five-week low, the US trade deficit widened in December, and pending home sales slipped in January. Next up are fourth quarter US GDP and PCE inflation numbers. In addition, while the latest FOMC minutes indicated disagreement on rates; markets still lean to two 25-basis point cuts by year-end.
In the United Kingdom (UK), the 10-year gilt yield fell to about 4.37%, its lowest level since 14 January, after UK inflation and labour data cooled the policy narrative. CPI eased to 3.0% year-on-year in January, with core inflation down to 3.1% – its weakest level since August 2021 – helped by slower rises in transport and food costs. Wage growth also slowed, with average earnings, including bonuses, rising 4.2% in the three months to December, while unemployment climbed to 5.2%. Traders now fully price in a 25-basis point rate cut by April, with better than 75% odds of a move as early as March, and two rate cuts priced by November.
In the euro area, Germany’s 10-year bund yield held below 2.75%, close to Monday’s 2.725% low, as political headlines and global risk sentiment supported longer-term bonds. Reports that European Central Bank (ECB) President, Christine Lagarde, may consider an early exit from the ECB presidency added uncertainty around succession dynamics, potentially elevating the influence of Emmanuel Macron and Friedrich Merz in any next-chair discussion. Bunds also took direction from the US, where softer inflation and renewed equity unease around AI-linked disruption risks lifted demand for government bonds.
South African (SA) bonds continued to lead on confidence and flow. The SA 10-year yield was 8.04% on Thursday, up 11 basis points on the session, yet still 0.41% lower over a month and 2.57% lower than a year ago. This week’s tone has been firm, with the 10-year bond trading around 7.91% to 7.93%, levels last seen in early 2015, as markets look to Finance Minister, Enoch Godongwana’s Budget on 25 February. Auction demand was robust – R14.2 billion in bids for R3 billion offered – while foreigners were net buyers of R3.68 billion in bonds and R5.87 billion in equities last week. Supportive fundamentals include January’s CPI print at 3.5% and expectations that higher commodity prices could lift tax receipts.
Indices
US equity futures were mostly flat this morning after a weaker Thursday session, with positioning dominated by the next data prints: the advance fourth quarter GDP estimate and the PCE price index, which is the Fed’s preferred inflation measure. The latest FOMC minutes showed a clear split on rates, including officials willing to tighten further if inflation stays sticky. In cash trading on Thursday, the Dow fell 0.54%, the S&P 500 lost 0.28%, and the Nasdaq slipped 0.31%. Eight of 11 S&P sectors closed lower, led by financials, consumer discretionary, and technology.
In the UK, the FTSE 100 dropped more than 0.5% on Thursday, retreating a day after a record close as Middle East tensions lifted oil and reintroduced inflation sensitivity. Defence and energy names advanced in that backdrop, while mining and banks dragged. Multinational energy company, Centrica, fell over 4% after reporting no new buyback and unchanged guidance. Diversified mining group, Rio Tinto, sank 4% on flat full-year profit; while fellow miners, Anglo American and Antofagasta fell about 3% each. Financial services firm, Barclays dropped 4%, with banks, Lloyds, NatWest, and HSBC also weaker, while energy companies Shell and BP, tobacco company, British American Tabacco, information analytics company, Relx, and defence company, BAE Systems held firmer. Paper manufacturer, Mondi gained nearly 1.6% despite lower 2025 profit and expected 2026 maintenance impacts.
European equities also stepped back from highs. On Thursday, the Euro Stoxx 50 fell 0.8% to 6,054 and the Stoxx 600 lost 0.6% to 624, weighed by downbeat earnings and the view that US rates may stay higher for longer. Fed minutes highlighted concern that inflation could take longer to return to target and did not rule out a hike if disinflation stalls. Banks that had rallied this month reversed, with UniCredit, Santander, and BBVA down more than 2%. Aerospace company, Airbus, slid 7% after missing delivery forecasts, while power company, Enel, fell nearly 4% after Italy increased corporate taxes on power utilities.
South African equities were softer on Thursday but constructive on the bigger trend. The FTSE/JSE All-Share Index ended at 121,845 yesterday, down 0.55% on the session, yet up 1.09% over a month and up 37.10% year-on-year. The SA40 traded at 113,645 on Thursday – down 0.60% on the day; down 0.85% over four weeks but up 39.67% over 12 months. The JSE has been rotating – strength in industrials, financials, telecoms, and retailers offset by resources – with attention now on the 25 February Budget.
Commodities
Brent crude futures held above $71/barrel this morning, near a six-month high and up over 6% on the week as geopolitics tightened the risk premium. President Trump set a 10- to 15-day deadline for Iran to reach a nuclear agreement, while the US carried out its largest Middle East military buildup since 2003, raising concern about a longer operation and potential supply disruptions. The key fear is a disruption to flows through the Strait of Hormuz, a critical export route. US inventory data further fuelled the oil price, with crude stocks falling by 9 million barrels, the biggest draw since early September.
Gold is hovering around $5,000/ounce, holding a two-day rise but still tracking a modest weekly loss as markets balanced geopolitical stress with Fed pricing. Fed Governor, Stephen Miran, pushed back on expectations for near-term cuts after stronger data – jobless claims fell to 206,000 – and investors await today’s PCE data. Physical buying in Asia remained seasonally quiet around Lunar New Year.
Copper slipped to about $5.78/pound as the dollar firmed and Fed minutes kept the ongoing debate around rates alive, even though traders have priced in two rate cuts for the year. Exchange inventories rose and China’s holiday-thinned activity weighed on demand.
Silver stayed above $78/ounce, set for its first weekly gain in four weeks on Iran-related risk and thin Asian liquidity, while Platinum fell toward $2,000/ounce, a two-month low, pressured by thin holiday trading, softer risk tone, and structurally limited autocatalyst demand despite ongoing South African supply interruptions.
Currencies
The US Dollar Index pushed up toward 98 this morning and was tracking about a 1% weekly gain, helped by firmer US data and a more hawkish Fed tone. US jobless claims fell to a five-week low and the Philadelphia Fed survey jumped to a five-month high, even as the US trade deficit widened in December and pending home sales slipped in January. Attention turns to US fourth quarter GDP and PCE inflation. Fed minutes showed a split on the rate path, including voices open to further hikes if inflation stays high. Governor Stephen Miran flagged a “less accommodative” trajectory. Markets have trimmed easing bets but still price two 25-basis point cuts by year-end.
The euro sat just under $1.18/€, its weakest level since 5 February, as the US dollar firmed on the Fed messaging. In Europe, markets also weighed reports that Christine Lagarde may consider stepping down early as ECB president, however, with no timeline set. Any succession process could elevate the influence of Emmanuel Macron and Friedrich Merz. Separate reporting suggested that Governor of the Bank of France, François Villeroy de Galhau, is set to step down in June. With euro-area inflation described as broadly contained, the ECB is widely expected to keep rates unchanged through the rest of the year.
Sterling traded below $1.36/£ after a softer UK inflation and labour mix strengthened the case for Bank of England cuts. Headline CPI slowed to 3.0% in January, with core inflation down to 3.1% – both multi-year lows in this series – alongside weaker pay growth of 4.2%, three months to December, and a rise in unemployment to 5.2%. Markets now fully price a 25-basis point cut by April, assign more than 75% odds to a move as early as March, and have two cuts priced by November.
The rand is being weighed down by the stronger greenback, to trade at R16.17/$ this morning, following hawkish comment by the Fed, risk aversion amid US-Iran tensions, and higher than expected inflation. Domestic inflation eased to 3.5% in January – down from 3.6% – but not as low as expected, tempering expectations for an imminent cut. The South African Reserve Bank held the policy rate at 6.75% in January, pointing to global uncertainty and the risk of higher food and electricity costs pushing inflation above the revised 2026 forecast of 3.3%. With a 3% target now in focus, sustained disinflation remains the condition for easing, while structural reforms, fiscal consolidation, policy credibility and a stable coalition continue to underpin sentiment.
*Please note that all information is at the time of writing.
Key indicators:
USD/ZAR: 16.14
EUR/ZAR: 18.98
GBP/ZAR: 21.72
BRENT CRUDE: $71.82
GOLD: $5,013.20
Sources: Bloomberg, Investing.com, Reuters, Trading Economics and TradingView.
Written by: Citadel Advisory Partner and Citadel Global Director, Bianca Botes.