Big Changes In Fed Interest Rate Cut Expectations This Year And Next

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I captured rate cut expectations before and after the Friday jobs reports. Let’s take a look.

 

Data from CME Fedwatch, chart by Mish

 

The current rate is 5.25%-5.50% effectively 5.37%.

 

Rate Expectation Percentage Point Change

• Sep 2024: -0.13 PP to 4.94% (-0.43 PP from current) 1.7 quarter-point cuts
• Nov 2024: -0.30 PP to 4.53% (-0.83 PP from current) 3.3 quarter-point cuts
• Dec 2024: -0.34 PP to 4.21% (-1.16 PP from current) 4.6 quarter-point cuts
• Jan 2025: -0.36 PP to 3.98% (-1.39 PP from current) 5.6 quarter-point cuts
• Mar 2025: -0.38 PP to 3.71% (-1.66 PP from current) 6.6 quarter-point cuts

Those odds were smack in the middle of volatility.

The CME website now shows data as of August 1 (no change on Friday), so they have something messed up.

The chart above reflects the huge volatility we saw in bond yields on Friday.

 

Dramatic 1-Day and 1-Week Changes in Bond Yields

For discussion, please see Dramatic 1-Day and 1-Week Changes in Bond Yields, What Happened?

Are too many cuts priced in or not enough?

That’s the question. I expect two cuts in September. Looking out to next year, I think too many cuts are priced in.

 

Recession Has Started

On July 8, I wrote Weak Data Says a Recession Has Already Started, Let’s Now Discuss When

I’ve seen enough. A recession has started. Let’s discuss starting with a very good indicator that has few false positives and no false negatives.

My follow-up post was on August 2.

August 2: The McKelvey (Sahm) Unemployment Rate Recession Rule Just Triggered

A recession indicator based off rising unemployment triggered in July. Claudia Sahm, a former Fed economist, takes credit for an indicator she did not invent. Let’s discuss.

Weakening data explains the recession call. Yield curve action provides a confirmation signal.

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More By This Author:

Dramatic 1-Day And 1-Week Changes In Bond Yields, What Happened?
The McKelvey (Sahm) Unemployment Rate Recession Rule Just Triggered
Unemployment Rate Jumps, Jobs Rise Only 114,000 With More Negative Revisions