The only aspect of consistency in the market's outlook on rate cuts lately has been bringing forward the expected date. Recent history coincides with this trend and September is now considered the earliest date for policy easing.
Fed funds futures this morning (April 18) have about a 71% chance that the Federal Reserve will cut its current target rate of 5.25%-5.50% at its September 18 meeting, according to CME data.
Take it with a grain of salt, given the rise and fall of previous inflection points. For example, the favorite was a rate cut at the June 12 FOMC meeting, a forecast that has since faded to less than a rough estimate of 20%.
For some economists, the I won't be fooled again The mentality is now in full swing. Economists at Bank of America, for example, warn that there is a “real risk” that rate cuts will be delayed until March 2025 “at the earliest,” CNBC reports.
“We believe policymakers will not feel comfortable starting the cutting cycle in June or even September,” writes BofA economist Stephen Juneau in a research note.
“In short, this is the reality of a data-dependent Federal Reserve. With inflation data coming in above expectations to start the year, it's no surprise that the Federal Reserve rejected any urgency to make cuts, especially given the strong activity data.”
Meanwhile, the Treasury market is waiting for the next shoe to drop, or not. The policy-sensitive bond has risen recently but has been in a holding pattern for the last five trading sessions until yesterday's close (April 17).
The two-year rate, which ranges between 4.9% and 5.0%, appears to be waiting for the next round of inflation data before making a sharp move one way or the other.
The next major US inflation data release is more than a week away: Friday, April 26, when the government releases March price data. Consensus forecasts expect a mixed situation for the turn of the year: a slightly larger rise in headline PCE to 2.5% and a drop to 2.7%.
The PCE forecasts echo previously published March figures on consumer price inflation. In other words, it is not obvious that greater clarity on the inflation outlook is near. In turn, some degree of stagnation in Treasury yields and rate cut expectations is a reasonable bet. But don't get too comfortable…this too shall pass.
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