Will the Fed Pushback
The EURO came under selling pressure after last week’s ECB meeting where there was no pushback against market expectations of an early interest rate cut. This has seen the probability of an April rate cut rise to 100%.
This sets the stage for Wednesday’s FOMC decision where a focus will be on whether there is any pushback against market interest rate expectations. This includes both timing of the first rate cut and the number of rate cuts during 2024.
The market has been a lot more aggressive in its interest rate expectations than the Fed has been indicating.
How will the market react?
I wish I had a crystal ball but since I don’t have one, all we can do is wait and see if the Fed pushes back.
In any case, it would take a lot to change market expectations. The issue is not if, but how many rate cuts and when the first one will occur. This has pit the market vs. the Fed.
Whatever the case, markets will try to spin the FOMC decision in a dovish way no matter what the Fed and Chair Powell say.
So, while there is room for a surprise on both sides, the key will be to what extent the Fed chooses to push back on aggressive market expectations.
Addendum:
Current market expectations:
March rate cut odds: 50/50
At least 2 cuts by June
5-6 rate cuts in 2024
FOMC: In December it indicated 3 rate cuts in 2024
Today’s FOMC statement
Watch to see if further “additional policy firming” is left. In or omitted.
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