Fed rate cut expectations have fallen since October

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NEW YORK, April 8 (Reuters) – Futures traders have reduced 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 continued strength in the U.S. economy.
Fed funds futures contracts for December on Monday reflected expectations of around 60 basis points in rate cuts this year, compared to some 150 basis points that had been priced at the start of 2024.
The prospect of a first 25 basis point cut in June stood at 49%, down from 57% a week ago, CME Group data showed on Monday.
Expectations for how deeply and how soon the Fed will cut rates have shifted rapidly over the last few months, as investors grow increasingly doubtful that policymakers will be able to lower borrowing costs without sparking an inflationary rebound in a strong economy.
The Fed has projected it will cut rates by 75 basis points this year.
Treasury yields, which are swayed by interest rate expectations, have moved higher as a result.
Data on Friday showed unexpected strength in the labor market, the latest in a series of reports reflecting stronger-than-expected growth.
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NEW YORK, April 8 (Reuters) – Amid signs of ongoing strength in the U.S. economy, futures traders have lowered their bets on how much the Federal Reserve will cut rates this year to the lowest level since October, according to LSEG data released on Monday. S. economics.

Compared to the roughly 150 basis points that had been priced at the beginning of 2024, Fed funds futures contracts for December on Monday reflected expectations of about 60 basis points in rate cuts this year. CME Group data on Monday indicated that the likelihood of a first 25 basis point cut in June was 49 percent, compared to 57 percent a week earlier.

In recent months, investors have become increasingly pessimistic about the Fed’s ability to reduce borrowing costs without inciting an inflationary rebound in a robust economy, which has caused expectations for the depth and timing of rate cuts to change dramatically. This year, the Fed is expected to reduce rates by 75 basis points.

As a result, Treasury yields—which are affected by expectations for interest rates—have increased. Monday saw the benchmark 10-year yield reach its highest level since November. The yield moves inversely with bond prices. In line with a string of reports that have shown stronger-than-expected growth, data on Friday revealed unexpected strength in the labor market.

Policy makers introduced language in January indicating that they would maintain the policy rate in its current range of 5 to 5 percent until they have “greater confidence” that inflation will reach the Fed’s 2 percent target.

Chair Jerome Powell and other top officials have called for “patience” when deciding when to cut rates, citing strong data and little progress on inflation in the last few months.

The Consumer Price Index for March, which is scheduled for release on Wednesday, will be closely watched by investors in order to determine the likelihood of rate cuts this year.

Editing by Andrea Ricci and Ira Iosebashvili; additional reporting by Daniel Burns; reporting by Davide Barbuscia.

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