Wall Street has again lowered its expectations for interest rate cuts this year amid signs of sticky inflation and a strong U.S. economy.
The latest data shows that futures traders on Wall Street now expect the U.S. Federal Reserve to cut interest rates two times this year, down from three expected rate cuts previously.
Professional traders have been ratcheting down their rate cut forecasts throughout this year as central bank officials continue to sound hawkish on inflation.
At the start of 2024, Wall Street had anticipated six interest rate cuts by year’s end.
Interest-rate swaps now imply 60 basis points of monetary easing in America this year, which means two cuts is the most likely scenario. As recently as April 4, markets were betting that there was a 50% chance of a third rate cut in 2024.
Additionally, a majority of traders now expect that the first rate cut in the U.S. will occur in September of this year. Previously, Wall Street was betting on a first rate cut happening in June.
Markets have been forced to adjust their outlook on interest rates as data points to a resilient American economy and inflation that is proving difficult to lower back to the Fed’s 2% annualized target.
In the last week, data showed that the U.S. economy added 303,000 jobs in March, which was well ahead of economist estimates for a rise of 200,000 jobs.
Also in recent days, the personal consumption expenditures (PCE) price index, which is the Fed’s preferred inflation measure, rose an annualized 2.8% in February of this year.
The other major inflation gauge, the Consumer Price Index (CPI), is due to next be reported on April 10.
Fed Chair Jerome Powell has said that the central bank wants to see inflation move closer to its 2% target and for the labour market to soften before interest rates are lowered.
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