SCHQ

Rate Cut Forecast Now Seen For September At Earliest

Rate Cut Forecast Now Seen For September At Earliest Apr. 19, 2024. September is now seen as the earliest date for policy easing. Fed funds futures on April 18 are estimating a roughly 71% probability that the Federal Reserve will reduce its current 5.25-5.50% target rate at the Sep. 18 meeting.

Rate Volatility's Market Implications

Higher-For-Longer Risk For Rates Drives Up Treasury Yields

Federal Reserve Chairman Jerome Powell on Tuesday conceded that inflation progress has stalled and the case for rate cuts has weakened. The 10-year Treasury yield is paying attention and rose to 4.67%, the highest since Nov. 6. The Treasury market has convinced the crowd to demand a higher yield.

Pre-FOMC: A Different Type Of Taper

The Federal Reserve is considering reducing the pace of quantitative tightening. The Fed's securities holdings have dropped from $8.5 trillion to $6.97 trillion. Kevin Flanagan says the Fed's ultimate goal is to have only Treasuries on its balance sheet. He says a "QT taper" is not on the immediate horizon.

Reflation Trade Is The New Bullish Narrative

Economic reflation is becoming the next bullish narrative as equity valuation increases continue to outpace earnings gains. The last time Wall Street focused on the reflation trade was in 2009. Interest rates, gold, and commodity prices have increased in the past few months. The house view for 2024 remains intact.

Inflation Progress May Be Bumpy, But Is Likely To Continue

Home Market Outlook Economy Analysis Inflation Progress May Be Bumpy, But Is Likely To Continue. Inflation cooled substantially last year, but upside surprises in early 2024 for the US and Europe have many investors concerned. Global central banks seem to be making continued progress. In inflation, inflation is improving in more major economies.

A (Un)Certain Framework

The FOMC has shifted away from specific metrics and adopted a more ambiguous strategy. The Fed has been using a varied set of targets for monetary policy, but the relevance of these data points is questioned. The FomC's outlook for inflation has become increasingly tilted to the upside.

Rate Cuts Off The Table For Near-Term Outlook: Futures Market

Fed funds futures indicate that interest rate cuts are unlikely in the months ahead. The policy-sensitive US 2-year Treasury yield has downgraded prospects for a near-term rate cut. The implied probability is heavily skewed toward no rate cuts for the next two FOMC meetings in May and June.