GSY - How Many Rate Cuts?
2024-02-08 03:43:00 ET
Summary
- At the beginning of the year, the market was pricing in fairly high odds of as many as 5 interest rate cuts by the Fed this year, the first one coming in March. Now, just a month later, March appears to be off the table with the odds of a cut down to just 23.5% today.
- The 10-year/2-year Treasury yield curve inverted in July of 2022 and remains inverted today, although not as deeply as its nadir in July of 2023.
- The ISM Manufacturing index isn’t above 50 - yet - but it rose to 49.1 in January and, more importantly, the new orders index rose to 52.5.
At the beginning of the year, the market was pricing in fairly high odds of as many as 5 interest rate cuts by the Fed this year, the first one coming in March. Now, just a month later, March appears to be off the table with the odds of a cut down to just 23.5% today. May still shows a 55.1% chance of a cut of 0.25% to 5-5.25% and June shows a 52.4% chance of another 0.25% cut. The rest of the year shows chances of further cuts at less than 50% and the end of the year shows the highest odds (38%) that rates will be down to 4 -4.25%. That would still be a total of 5 cuts but the market’s confidence in that path has deteriorated significantly since January. Why? Well, the Fed has certainly done its best to knock down the speculation but I think the real reasons are more fundamental....
How Many Rate Cuts?