Fed rate cut expectations for 2024 fall to lowest since October

NEW YORK (Reuters) – Futures traders reduced their bets on how much the Federal Reserve will cut rates this year to the lowest level since October, LSEG data showed on Monday, amid evidence of the continued strength of the American economy.

Federal funds futures for December on Monday reflected expectations of about 60 basis points of rate cuts this year, compared with about 150 basis points that had been priced in early 2024. The prospect of a first cut of 25 basis points in June stood at 49%, compared to 57% a week ago, according to CME group data published on Monday.

Expectations about how much and how quickly the Fed will cut rates have changed rapidly in recent months, as investors increasingly doubt whether policymakers will be able to reduce borrowing costs without trigger an inflationary rebound in a strong economy. The Fed plans to cut rates by 75 basis points this year.

Treasury yields, influenced by interest rate expectations, have risen as a result. The benchmark 10-year yield, which moves inversely to bond prices, reached its highest level since November on Monday. Data released Friday showed unexpected strength in the labor market, the latest in a series of reports reflecting stronger-than-expected growth.

In January, policymakers announced they would keep the policy rate at its current range of 5.25% to 5.5% until they were “more convinced” that inflation was heading lower. Fed’s 2% target.

The combination of strong data and limited progress on inflation over the past two months has amplified calls from top officials – including Chairman Jerome Powell – to be “patient” as the decision approaches. to reduce rates.

Investors will be closely watching the March consumer price index, which will be released on Wednesday, to better gauge the chances of rate cuts this year.

(Reporting by Davide Barbuscia; additional reporting by Daniel Burns; editing by Ira Iosebashvili and Andrea Ricci)