Futures Market Indicates Rate Cuts Off the Table in the Near Term
James Picerno | Apr 15, 2024 07:38AM ET
In the wake of last week’s hotter-than-expected consumer inflation data for March, the implied forecast via Fed funds futures indicates that interest-rate cuts are unlikely in the months ahead.
Using early-Monday-morning prices as a guide, the implied probability is heavily skewed toward no rate cuts for the next two FOMC meetings in May and June. For the September policy meeting the current forecast is too close to call and is a coin toss in terms of guesstimating.
The current outlook marks a conspicuous change from just a week ago (Mar. 8), when futures were pricing in a moderate probability of a cut by September.
The policy-sensitive US 2-year Treasury yield has also downgraded prospects for a near-term rate cut. This key yield for evaluating the policy outlook jumped sharply last week, closing at 4.88% on Friday (Apr. 12), close to a five-month high.
Traders are closely watching the spread between the 2-year yield and effective Fed funds rate for insight into how the outlook for policy evolves. Notably, the gap between these rates has recently narrowed significantly after the 2-year yield rebounded – a sign that the market is downgrading the odds for a near-term rate cut.
Two key questions hang over the outlook for rate-cuts. First, is the hawkish reaction to last week’s consumer inflation data for April excessive?
Meanwhile, how does the Iranian missile attack on Israel alter the calculus?
If the attack marks the start of a wider Middle East war, will it trigger a run for safety in global markets that lifts demand for Treasuries (and reduce yields), if only temporarily?
Get The News You Want
For the moment, the world is closely monitoring how and when Israel will react. “Israel can’t allow such a large attack over Israel without some kind of response, be it small or large,” an Israeli official in the prime minister’s office tells NBC News. “It’s up to the war Cabinet to decide now.”
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.