Fed rate-cut odds continued to decline over the past week, amid continued strong economic data and a notable shift from Fed chief Jerome Powell.
Markets pushed back the first Fed rate cut yet again, this time from July to September. And that's by no means a sure thing. For the full year, markets are now leaning toward just one rate cut. There's still a solid chance for two quarter-point cuts, but also a slim but growing possibility that the Fed will take no action at all in 2024.
Fed chief Jerome Powell said Tuesday that recent data shows "a lack of further progress so far this year on returning to our 2% inflation goal." He signaled that rates will stay high until inflation gets closer to 2%. As recently as early April, Powell had maintained that there was continued progress on inflation.
Also last week, March retail sales rose more than expected, with February gains revised higher. The Philadelphia Fed manufacturing index for April unexpectedly jumped to a two-year high, the latest sign that long-lagging factory sector is gaining momentum.
Fed Rate Cut Odds
May 1: Markets see a 3.9% chance of a quarter-point rate cut at the end of the April 30-May 1 meeting, according to CME FedWatch Tool. There was only a 5.9% chance back on April 12 and 10.4% on March 20.
June 12: Investors expect only a 17% chance of a quarter-point rate cut at the June 11-12 meeting, and 0.5% of 50 basis points by then. On April 12, there was a 28.3% chance of a quarter-point move. It was 74.6% back on March 20.
July 31: There's a 42.7% chance of a quarter-point cut by the July 30-31 meeting, and 5.7% of 50 basis points. On April 12, markets forecast a 56.5% chance of 25 basis points by then, and 12% odds for 50 basis points. On March 20, there was an 87.4% chance of 25 basis points and 40.9% for 50 basis points.
Sept. 18: Markets do see a Fed rate cut by at the Sept. 17-18 meeting, but it's no lock at 65.1%. There's a 20.1% chance of 50 basis points by then. On April 12, the odds were 76.5% and 32.5%, respectively. On March 20, investors pegged 25 basis points at 97%, with a 76.2% chance of 50 basis points and 32% for 75 basis points.
Nov. 7: The odds of a quarter-point Fed rate cut are 79.6% by the Nov. 6-7 meeting, which ends two days after U.S. elections. There's a 38.8% chance of 50 basis points by this Fed meeting. On April 12, the chances were 82.6% and 43.9%, respectively. On March 20, the odds were a 98.6% chance for 25 basis points, 87.4% for 50 basis points, 55.8% for 75 basis points and 18.5% for 100 basis points.
Dec. 18: By the final Fed meeting of the year on Dec. 17-18, investors still only see an 84.7% chance of a rate cut, with 15.3% odds of no move at all. There's a 49% chance of 50 basis points and 17% of 75 basis points.
On April 12, investors saw the chances at 91.1% for 25 basis points, 63.6% for 50 basis points, 28.8% for 75 basis points and 7% for a full point. On March 20, markets expected a 99.5% chance of a quarter-point Fed rate cut by year-end, 94.8% of 50 basis points, 76.8% of 75 basis points and 43.3% of 100 basis points. There was a 12.9% chance of 125 basis points, or five quarter-point Fed rate cuts.
On Thursday, investors will get the first reading for first-quarter economic growth. The GDP report will include the core PCE price index, the Fed's favorite inflation gauge. The March reading for the core PCE price index is due Friday morning.
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