Fed Outlook

More About the Destination Than the Timing

It’s time, I think, that I should try to alleviate all the confusion out there. Let’s start with interest rates and the Fed. I’ll get to why the Fed has been pushing back on the market’s thinking that we’ll be seeing 5 or 6 rate cuts this year, and principally why March is a low-odds bet (but not a zero-odds bet). 

I think the Treasury market is pretty well calibrated for what the odds of a cut should be, which is below 50% based on all the evidence at hand. But what’s most important is that when we go back to last September, a majority of the 12 FOMC members had penned in one more hike (which we are no longer going to see), and one policymaker was predicting a funds rate of over 6% this year. That clearly isn’t going to happen, but the question is actually why the Fed has clearly signaled that the rates cycle has peaked. And the reason is less in the high-frequency data, and more in the information that Powell provided us at the post-meeting press conference last month. There were three things: