Markets Want Rate Cuts Faster and Sooner. But Fed Is Pushing Back
- Strong retail sales reduce chances of Fed rate cut in March
- Latent risks mean later Fed meetings more likely to see cuts
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Retail sales today further chiseled away at the odds of a March rate cut, but the chance of reductions in subsequent meetings is likely to commensurately rise, and thus flatten spreads in fed funds futures for maturities beyond March.
“Who knows best?” is being played out again between markets and the Federal Reserve. The market is of the (weighted-average) view that rate cuts – six of them – will be required this year. The Fed, at least going by Board of Governors member Christopher Waller in a speech on Tuesday, is not yet convinced. He stressed there is no reason to move as quickly or cut as rapidly as in the past.