06 Feb COTW: Rate Cuts
- The Federal Reserve’s Federal Open Market Committee (FOMC) met for the first time this year on January 31. As widely expected, the FOMC held rates steady at 5.25% – 5.5%.
- Expectations for interest rate cuts in 2023 have increased since December 12, when Fed Chair Powell first alluded to the possibility. Markets have been kept in risk-on mode since the ‘Powell Pivot’ on December 12, with the S&P 500 up 7.5% since then.
- Markets are still pricing in the equivalent of five rate cuts this year, despite the probability of a rate cut in March all but evaporating following the post-FOMC press conference. The probability of a rate cut in March has dropped to 15.5%, from more than 70% a month prior. The Federal Reserve sees three rate cuts this year.
- As of February 5, the implied Fed funds rate for December 2024 was 4.14%.
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