Source: Zhitong Finance Author: Ma Huomin
The market currently expects the Federal Reserve to cut interest rates by about 65 basis points in 2024.
Investors have been betting far more aggressively on cutting interest rates than Federal Reserve officials for most of this year, but now they are moving in the opposite direction. The market currently expects the Federal Reserve to cut interest rates by about 65 basis points in 2024, while the median forecast announced by the Federal Reserve after the March 19-20 meeting is 75 basis points.
“I thought it would be difficult for the market to challenge the hawkish position of the Federal Reserve, but in the face of some evidence, the market is clearly willing to do this,” said Benoit Gerard, an interest rate strategist at the French Foreign Trade Bank.
Traders are reacting to several economic data from the past few days. These data indicate that the US economy is strengthening and may reduce the need to cut interest rates. The price of US bonds fell in response. The 10-year US Treasury yield hit 4.35% on Tuesday, the highest level since November last year.
Revenue and expenditure data for February showed that consumption remained strong. Additionally, an indicator measuring US manufacturing activity expanded for the first time since 2022, exceeding economists' expectations.
Federal Reserve Chairman Jerome Powell said after the consumer data was released that these data were “basically in line with our expectations,” and reiterated that the Federal Reserve is in no hurry to cut interest rates.
The US factory orders, light vehicle sales, and job vacancy data scheduled to be released on Tuesday may also provide investors with more clues about the US economy before the release of key employment data on Friday.
This is not the first time in recent weeks that traders have questioned the prospects of the Federal Reserve cutting interest rates. They had bet on cutting interest rates by less than 75 basis points a few days before the Federal Reserve's March interest rate decision was announced.
Traders are also skeptical about their bets to cut interest rates for the first time in June. On Monday, the possibility of cutting interest rates by 25 basis points in June fell below 50% for a while.
“Although June is not impossible, the market's confidence that the Fed will cut interest rates for the first time at that time is fading,” ING strategist Benjamin Schroeder said. “In the next few weeks, we can expect some Fed officials to still express their views on the June interest rate cut, but the final data will be the deciding factor.”
edit/lambor