Big Changes in Fed Interest Rate Cut Expectations This Year and Next

Graphic:

Excerpt:

I captured rate cut expectations before and after the Friday jobs reports. Let’s take a look.

The current rate is 5.25%-5.50% effectively 5.37%.

Sep 2024: -0.13 PP to 4.94% (-0.43 PP from current) 1.7 quarter-point cuts
Nov 2024: -0.30 PP to 4.53% (-0.83 PP from current) 3.3 quarter-point cuts
Dec 2024: -0.34 PP to 4.21% (-1.16 PP from current) 4.6 quarter-point cuts
Jan 2025: -0.36 PP to 3.98% (-1.39 PP from current) 5.6 quarter-point cuts
Mar 2025: -0.38 PP to 3.71% (-1.66 PP from current) 6.6 quarter-point cuts

Those odds were smack in the middle of volatility.

The CME website now shows data as of August 1 (no change on Friday), so they have something messed up.

The chart above reflects the huge volatility we saw in bond yields on Friday.

….

Are too many cuts priced in or not enough?

That’s the question. I expect two cuts in September. Looking out to next year, I think too many cuts are priced in.

Author(s): Mike Shedlock

Publication Date: 3 Aug 2024

Publication Site: Mish Talk