On Wall Street, some people are beginning to be pessimistic about the Fed's interest rate cut expectations. They believe that healthy US economic data combined with rising oil prices may once again trigger a “hawkish accident” for the Federal Reserve and other central banks.

Barclays strategists said in a report on Wednesday that the interest rate market's current bet is that the Fed may cut interest rates three times less than expected by 25 basis points this year. Meanwhile, the options market believes that short-term borrowing costs are much more likely to be higher than the current level of 5.25%-5.5% before the end of the year than in February and early March.

Compared to a month ago, option pricing shows that federal funds rates are more likely to rise before the end of the year

In other words, some people in the financial market are preparing for the possibility that expectations of the Fed's interest rate cut in the near future may deviate. They are even hedging the possibility that policymakers may even raise interest rates again before December, which may cause greater fluctuations in various types of assets.

For example, this week's data showed signs of continued US inflation, triggering re-inflation trading on Tuesday: both US stocks and US Treasury bonds were sold off, gold and silver rebounded, the dollar index soared, crude oil prices rose, and closed at the highest level since the end of October last year. Barclays strategists Stefano Pascale, Anshul Gupta, Riddhiman Dass, and Tejas Shah said:

“Signs of a renewed acceleration in the US economy recently reversed Goldilocks claims and rekindled the risk that the central bank will have to take a tougher stance than anticipated. This is already reflected in the short-term interest rate market.”

Other strategists believe that global economic recovery is driving a strong commodity rebound in 2024, which may disrupt the Fed's efforts to contain inflation and may overshadow its path to cutting interest rates in the middle of the year.

Commodities, from oil and gasoline to gold and silver, all rose higher at the beginning of the year, and some soared to levels not seen in years. This rally has rekindled concerns about inflation among financial market investors and raised concerns that the Federal Reserve may have to maintain higher borrowing costs for longer than expected.

The commodity index compiled by foreign media tracks 24 of the most actively traded commodity futures contracts, including energy, metals, and crops. It climbed to the highest level since November last year on Wednesday, as traders digested the escalation of geopolitical tension in the Middle East, the Russian-Ukrainian conflict, and the possibility that the Federal Reserve would not cut interest rates for the first time until at least this summer.

Nanette Abuhoff Jacobson, a global investment strategist at Hartford Funds, said, “The current situation is that the market is sniffing out the possibility that global economic growth will be better than expected.” Global inflation has intensified and commodity prices have risen, making it “much more difficult” for the Federal Reserve to implement the expectation of three interest rate cuts.

edit/emily