VGSH - Markets Continue To Price In Path For Rate Cuts In 2024

2024-02-21 11:11:00 ET

Summary

• The latest inflation data is sticky, but the markets have only delayed rather than canceled expectations for that the Federal Reserve will start trimming interest rates in the near future.
• The Treasury market continues to price in rate cuts as well, based on the policy-sensitive 2-year yield, which is considered the most sensitive spot on the yield curve for anticipating near-term policy.
• Reviewing a simple model that compares the Fed funds rate to inflation and unemployment suggests that policy is tight and so rate cuts are reasonable at this point.

The latest inflation data is sticky, but the markets have only delayed rather than canceled expectations for that the Federal Reserve will start trimming interest rates in the near future. Some analysts are pushing back on the idea, including forecasts in some quarters that the Fed may leave rates higher for longer. But judging by implied market estimates for changes in monetary policy, the central bank is still on track to cut in the near term....

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