Breaking News
Get 45% Off 0
💰 With a 129% YTD gain in the bag, these are our AI’s top global picks for March
Read now

Markets Continue to Expect Rate Cuts After Fed Chair’s Comments

By James PicernoMarket OverviewJul 03, 2024 13:45
ng.investing.com/analysis/markets-continue-to-expect-rate-cuts-after-fed-chairs-comments-203720
Markets Continue to Expect Rate Cuts After Fed Chair’s Comments
By James Picerno   |  Jul 03, 2024 13:45
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
US2YT=X
-0.61%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

Federal Reserve Chairman Jerome Powell, speaking at a conference on Tuesday, gave the doves most of what they wanted to hear. Although he said more evidence was needed to rationalize cutting interest rates, his overall message favored expectations that policy easing is on the near-term horizon.

“We’ve made quite a bit of progress and in bringing inflation back down to our target,” Powell advised at a central banking forum in Portugal. “The last [inflation] reading and the one before it to a lesser extent, suggest that we are getting back on the disinflationary path. We want to be more confident that inflation is moving sustainably down toward 2% before we start the process of reducing or loosening policy.”

The “progress” includes Friday’s news that the core reading of Fed’s preferred inflation measure eased in year-over-year terms in May to 2.6% — its softest pace in more than three years, based on the Personal Consumption Expenditures Price Index. Reaching the Fed’s 2% inflation target, in other words, appears to be on the near-term horizon.

PCE Inflation Data
PCE Inflation Data

The policy-sensitive 2-year Treasury yield continues to trade in a tight range, ending yesterday’s session (June 2) at 4.75%. But that’s well below the ~5% mark that was briefly reached in April, which suggests that investor sentiment remains moderately confident that the Fed will soon cut its current 5.25%-to-5.50% target rate.

US 2-Year Yield vs Fed Funds Effective Rate
US 2-Year Yield vs Fed Funds Effective Rate

The Fed funds futures market is pricing in a moderate probability that the central bank will soon begin easing policy, perhaps as early as the Sep. 18 FOMC meeting. The current estimate reflects a roughly 65% probability that the central bank will announce a rate cut in two months.

Fed Funds Futures Probabilities
Fed Funds Futures Probabilities

The timing of the rate cuts is a key factor, Powell noted.

“We’re well aware that if we go too soon, that we can undo the good work we’ve done. If we do it too late, we could unnecessarily undermine the recovery and the expansion.”

The next update on inflation that will test whether disinflationary progress is continuing arrives on July 11, with the release of consumer prices for June.

Markets Continue to Expect Rate Cuts After Fed Chair’s Comments
 

Related Articles

Markets Continue to Expect Rate Cuts After Fed Chair’s Comments

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Apple
Continue with Google
or
Sign up with Email