SGOV - The New Rate Regime: Playing For Rate Cuts

2024-01-24 18:15:00 ET

Summary

• Less than two weeks ago, the March 2024 FOMC meeting was widely viewed as the timeline for first cut, with the probability coming in at just about 77%.
• Post-Fed comments over the last few trading sessions have pushed that probability down to 46%, with the May Fed meeting becoming the new frontrunner.
• The implied probability for Fed Funds Futures has scaled back rate cut expectations, albeit just slightly.
• Unlike 2022 and 2023, the current calendar year brings with it the prospect of rate cuts, not rate hikes.

By Kevin Flanagan

Last week, I wrote about the money and bond markets apparently doubling down on their optimistic expectations for Fed rate cuts this year. However, an interesting development occurred over the last week: Fed pushback. Now, this doesn’t mean the Fed is not going to cut rates in 2024. It’s just that the markets had apparently gotten too far ahead in their expectations for the policymakers' liking. Against this backdrop, investors should consider how to play this pivot in monetary policy....

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