The Thing About This Wednesday
Traders are pricing in a 2 percent chance our central bankers will announce a rate cut following this week’s Federal Open Market Committee meeting.That’s slim-to-none territory, and slim is fading fast.
Rate-cut fever has been fading for most of the year in fact, with expectations for a total upwards of six or seven to somewhere in the two-to-three neighborhood today.
In December, the Fed’s “dot plot” forecast a 2.5 percentage point reduction in the federal funds target range by the end of 2026. That would take the range from 5.25 percent to 5.50 percent to 2.75 percent to 3.00 percent.
Fed funds futures traders now see a 40 percent chance the Fed will hold steady in June too, up from 34.8 percent the day before February Producer Price Index data came in hotter than expected and from 25.8 percent on March 7.
Futures still reflect a 67.5 percent probability of at least three 25-basis-point cuts by December. On March 7 traders were pricing in 56 percent probability of at least four cuts.
That’s what the CME FedWatch Tool says.
The market is still pricing in rate cuts for 2024. But still generally rising consumer- and producer-level prices have complicated the timing.
And there’s some emerging softness in the labor market to consider too, in addition to a rising narrative about the impact of debt-service costs on consumer sentiment.
The thing to note is that the Fed is no longer fighting inflation. The thing to bookmark for future reference is the potential for stagflation.
With market rates trending higher for most of the year, some of the Fed’s work is being done for it, with difficult-to-account-for consequences in the real economy.
Price action on Friday reflected some of the angsty uncertainty we’ve been pushing upward against for quite some time now, with all three major equity indexes sagging and the yield on the 10-year US Treasury note spiking.
Let’s start the week with a positive point, though: As Ryan Detrick of The Carson Group noted in a post on X on Friday, March 13 was the 50th trading day of the year.
At that point, the S&P 500 was up 8.3 percent year to date. When the S&P 500 is up more than 5 percent year to date on day 50, the rest of the year has been higher 24 out of 25 times.
Setting aside the fact that the outlier was 1987, this is really good stuff.