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Betters Now Think the Fed Will Cut Interest Rates a Full Point This Year

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25 comments on Betters Now Think the Fed Will Cut Interest Rates a Full Point This Year

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Data from CME FedWatch chart by Mish

I created the above chart in Excel by creating a weighted average of CME FedWatch interest rates expectations on those select dates. 

The data reflects how speculators and hedgers are currently positioned. 

March 7 vs March 20

  • The December projection on March 7 was roughly 5.5 percent 
  • The December projection on March 24 is roughly 4.0 percent 

That’s a change of six quarter-point moves, one for each meeting between now and December.

What’s the Message?

  1. Has inflation been cured?
  2. Soft landing?
  3. Bank failures spread forcing the Fed to act?
  4. Global credit contraction? 

There is a huge difference between (1 or 2) and (3 or 4).

In retrospect, there is option 5. The betters and hedgers have gone mad. 

In Fed Q&A Jerome Powell Wonders “How Did Bank Failures Happen?”

Meanwhile, In Fed Q&A Jerome Powell Wonders “How Did Bank Failures Happen?”

I outline 12 mistakes the Fed has made. 

I suspect Powell understands at least some of them but he cannot or does not want to say “The Fed made many mistakes” for political reasons. 

This post originated on MishTalk.Com.

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Mike Shedlock

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25 Comments
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Lisa_Hooker
Lisa_Hooker
3 years ago
The better bettors?
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SAKMAN
SAKMAN
3 years ago
Congress pays down 1/5th of national debt through printing. Fed keeps raising rates and increasing balance sheet.
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Sunriver
Sunriver
3 years ago
I agree 4% by end of 2023
I also like the comment: 0% or collapse (posted below).
Fed balance sheet north of $10 trillion by end of 2023
Inflate our way to paying the federal deficit down? Likely.
Gold and Pepsi.
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worleyeoe
worleyeoe
3 years ago
Reply to  Sunriver
The Fed has known for three years this day was coming. Forget about SVB and their troubles since 2019. The Fed backstop has been planned since day one. All of this is a diversion to force treasury yields lower.
30YFRM may breach 6% in a couple of weeks, giving the housing market some legs into spring. A rebound in oil by early May is likely. Durable goods will rebound by May or June.
The underlying reasons for increased inflation are entrenched through 2024. We’re just wrapping up the 1st quarter. There’s way more to come, in terms of inflation, rate hikes, & financial dislocations.
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Call_Me
Call_Me
3 years ago
With the title of this post is Mish projecting how he feels about the financial ‘elite’?
The better bettor is the one who bets best!
Call_Me_Al
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JackWebb
JackWebb
3 years ago
Mish, try either an open thread, or better yet a post about the Federal Home Loan Bank, which is at the center of all this. I keep mentioning it, but it winds up being somewhat off-topic. It is anything but that, but it’s getting NO mention anywhere. I’m thinking that the intrepid media doesn’t want anyone to know the depth of the corruption and self-dealing involved. I’m increasingly cynical, and this one puts the cynic in cynicism. Really, it does. Third World stuff.
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Jackula
Jackula
3 years ago
Living in California been seeing a lot of flooded high productivity farmland in the San Joaquin valley with more flooding to come when the Sierra snowpack melts. This is not gonna be a boon to food prices. Lump in China ramping up their energy use as they exit the pandemic and the ongoing mess in the Ukraine and inflation is probably not gonna be tame. This may be offset by the increasing bank instability…
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Call_Me
Call_Me
3 years ago
Reply to  Jackula
However, the 2024 growing season should be bountiful so just eat/hedge accordingly 🙂
Call_Me_Al
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dtj
dtj
3 years ago
Credit is going to contract as a result of the bank failures. That gives them cover to stop raising.
They will claim “inflation has been conquered” to also give them cover.
I wouldn’t rule out a rate decrease this year in response to a crisis.
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Mac Timred
Mac Timred
3 years ago
Compare Jan 11 to Mar 24. Not a huge difference, that difference being the banking crisis. Appropriate to shade lower in light of banking crisis.
That said, it took forever for the market to believe “higher for longer” and so this may be something of a reversion back to disbelief. The dot plot which has one rate cut next year is most likely a reasonable expectation.
If the market is smarter than the dot plot, it is because Powell is enough of a realist to pause, lengthy pause, if it turns out things really are broken.
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Nonplused
Nonplused
3 years ago
So what? There are only two possible rates now: Zero and collapse.
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Bam_Man
Bam_Man
3 years ago
“It’s hard to make predictions. Especially about the future.”
— Yogi Berra
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Nuddernoitall
Nuddernoitall
3 years ago
Reducing the Fed rate by more than 100 basis points by end of calendar year? I would take the “absolutely not happening” side of that coin. But, with one proviso. And that is, IF Powell is suddenly relieved halfway through his second term because of a previously “unseen” medical issue.
Biden’s recent public support statement of Powell has given cover to Biden should the President “reluctantly” accept Powell’s sudden resignation (due to health concerns). Of course that Fed chair change would occur just a few short weeks before the 2024 presidential run. When the recession drums are beating, when inflation is still high and the economy is even more unhealthy than Powell’s sudden illness — well, it’s good to go to the voters and tell them better days (for the one percent) are ahead.
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Maximus_Minimus
Maximus_Minimus
3 years ago
Reply to  Nuddernoitall
Powell’s sudden illness is the worse they could do. That would indicate full panic mode.
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Nuddernoitall
Nuddernoitall
3 years ago
Reply to  Maximus_Minimus
You’ve observed this administration’s wildly perplexing policy decisions during the past two years. Replacing a man who is “ill” (and I’m not talking about Biden) would just be the “humane” thing to do. (Sorry Jerome…Liz won.)
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Maximus_Minimus
Maximus_Minimus
3 years ago
Reply to  Nuddernoitall
If they wanted to calm the markets, the sane thing would be to retire the hapless Bumbling-Yellen, but sanity is also sorely lacking.
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WTFUSA
WTFUSA
3 years ago
Reply to  Maximus_Minimus
The hell with wanting to calm the markets – the sane thing would have been to not hire her as treasury secretary in the first place, IMO.
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Nuddernoitall
Nuddernoitall
3 years ago
Reply to  WTFUSA
A prisoner in solitary confinement was permitted to choose one of two continuous audio loops to be blasted into his small cell. The options were scratching on a chalk board (which the prisoner did choose). He rejected the other audio option of listening to Janet Yellen’s remarks at any public event.
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1-shot
1-shot
3 years ago
Apparently they didnt learn from SVB you should try to fight the fed. Wishful thinking wont move the market.
Inflation us still far from 2% and thats the tarket, so expect more increases, not cuts.
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Doug78
Doug78
3 years ago
Reply to  1-shot
You mean don’t fight the Fed. That way lies madness and despair. If the Fed says they are going to raise rates, believe them and act accordingly.
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MarkraD
MarkraD
3 years ago
Reply to  1-shot
Fed rate changes take up to two years to take effect.
If they’re seeing signs it’s starting to work, they slow and watch, if the Fed overshoots and raises too much too fast, the reverse problem is even worse.
.
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RyanL
RyanL
3 years ago
Reply to  MarkraD
So repeat the 70’s then? No thanks. I’d rather see Mark Cuban lose some of his uninsured deposits.
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8dots
8dots
3 years ago
Investors parked in the front end. The 2y plunged from 5% to 3.76%. The 1Y from 5.25% to 4.2%. The regional banks tsunami might be over.
They popped up today. The reached their TA targets. The 10Y minus 2Y almost reached parity. DB is SIFI. Det 10Y minus 2Y almost reached parity. Next week the Dow might rise above Mar 13 high. If so, it might cont up.
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Jack
Jack
3 years ago
Reply to  8dots
So the recession is half way through?
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MarkraD
MarkraD
3 years ago
I get a smirk thinking of chart/pattern traders trying to trade this market.
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