Markets continue to push back and price out Federal Reserve interest-rate cuts, following weeks of Fed policymakers jawboning and stronger-than-expected inflation and other economic data.
Investors now longer expect a Fed rate cut in June, though that it's essentially a toss-up. Meanwhile, markets are moving away from three rate cuts this year.
A lot of Fed policymakers spoke last week. Some leaned hawkish, some dovish and a lot of wait and see.
More importantly, economic data continues to run hot overall.
Friday's jobs report was a lot stronger than expected, though wage growth did cool roughly in line with views. That followed Monday's ISM manufacturing index, which moved above the break-even 50 level after signaling contraction for 16 months. That was somewhat offset by Wednesday's ISM services index, which unexpectedly pointed to slower growth.
Meanwhile, China economic activity picked up, while Europe also showed positive signs. Along with rebounding crude oil and copper prices, these also signal stronger growth and stickier inflation.
At the March 20 meeting, the Fed's latest dot-pot projected a median three rate cuts, the same as in late 2023. But it was by the thinnest of margins.
Fed Rate-Cut Odds
May 1: Markets see a 4.6% chance of a quarter-point cut as of April 8, according to CME Group's FedWatch Tool. Back on Jan. 16, investors saw 97.5% odds of at least a quarter-point Fed cut and 60.5% of a cumulative 50 basis points.
June 12: Investors peg a 46% chance of a quarter-point cut by the June meeting, down from 53.4% on Friday. There's just a 2.4% chance of a cumulative 50 basis points. On March 28, the odds were 60.4% chance of at least 25 basis points, including 5.2% of 50 basis points. Back on Jan. 16, markets saw a 100% chance of at least a quarter-point Fed rate cut, 98% chance of 50 basis points and 68.6% of 75 basis points.
July 31: Markets are betting on a 69.7% chance of at least 25 basis points by this meeting, with a 19.6% chance of 50 basis points.
For the full year, markets are now fractionally leaning against three-quarter point Fed rate cuts, with just 49.4% odds, down from 54% on Friday%. There's a 17.4% chance of 100 basis points.
Back on Feb. 17, investors saw an 88.5% chance of 75 basis points of easing and 64% for 100 basis points. On Jan. 16, markets saw 125 basis points as highly likely, with 42.1% for 150 basis points.
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