Goldman Sachs' analysts no longer expect a U.S. interest rate cut in May and see four 25 basis point cuts this year.
"Because there are only two rounds of inflation data and a little over two months until the May (Fed) meeting, the comments suggest to us that a rate cut as early as May, which we had previously expected, is unlikely," Goldman Sachs analysts said in a note. They now forecast an extra cut next year instead, with an unchanged terminal rate forecast of 3.25-3.5%." source : goldmansachs, reuters
US financial conditions are very easy compared to Fed Funds...
Too easy? Bear in mind what the FOMC said in the Minutes on Wednesday: "Several participants mentioned the risk that financial conditions were or could become less restrictive than appropriate, which could add undue momentum to aggregate demand and cause progress on inflation to stall." Could this lead the fed to keep rates higher for longer? How long will the market be able to shrug off high rates and higher bond yields? Source: www.zerohedge
This chart shows the market pricing of a rate cut over the next three FOMC meetings.
March probability = 5% (was 80% at the start of the year) May probability = 29% (was 100% at the start of the year) June probability = 67% (was 100% at the start of the year) Source: Bianco Research
FOMC Minutes Show 'Most Officials Fear Risk Of Cutting Too Quickly'
The discussion came as policymakers not only decided to leave their key overnight borrowing rate unchanged but also altered the post-meeting statement to indicate that no cuts would be coming until the rate-setting Federal Open Market Committee held “greater confidence” that inflation was receding. The meeting summary indicated a general sense of optimism that the Fed’s policy moves had succeeded in lowering the rate of inflation, which in mid-2022 hit its highest level in more than 40 years. However, officials noted that they wanted to see more before starting to ease policy while saying that rate hikes are likely over. Members cited the “risks of moving too quickly” on cuts. Source: CNBC Activate to view larger image,
The US monetary base has been rising significantly recently.
In the last 12 months alone, there has been a rise of $420 billion, primarily fueled by bank reserves. While the Fed should not classify this as QE due to mechanical differences, it seems to echo the patterns of previous periods of monetary stimulus following the Global Financial Crisis. The economy (and markets) are addicted to liquidity. Source: Bloomberg, Tavi Costa
A rare image of a dove...
The Federal Reserve should cut rates in March says former St. Louis Fed President James Bullard Source: Barchart, FT
Traders no long expect Fed to cut rates in May and switched to June.
*Approximately 90 bps of cuts are now priced in for the full year, down from 137 bps expected before the Jan. 30-31 FOMC meeting. Source: Bloomberg
Has a default cycle started?
Source: Game of Trades, Apollo
