The Fed may have a problem… something is afoot in the funding markets
Market Now More Hawkish Than The Fed As June Rate-Cut Odds Fade
BY TYLER DURDEN
The official narrative is breaking bad.
‘Soft’ survey data is literally collapsing as ‘hard’ data improves gradually…
Source: Bloomberg
…and more worryingly, inflation signals are flashing red once again…
Source: Bloomberg
Having started the year massively more dovish than The Fed’s ‘Dot Plot’ (almost 7 cuts vs The Fed’s 3 cuts), recent resurgence in inflation signals and continued strong growth signals offer The Fed a smaller and smaller ‘narrative window’ to start (and continue) a rate-cutting cycle. The market is now once again pricing in less rate-cuts than The Fed’s latest plot for this year and is notably less dovish through 2026…
Source: Bloomberg
“I thought it would be hard for the market to challenge the Fed on the hawkish side, but apparently it is willing to do so, in the face of some evidence,” said Benoit Gerard, a rates strategist at Natixis in Paris.
As the market is now pricing in just 65bps of rate-cuts in 2024 (remember in January it was pricing in almost 170bps of cuts)…
Source: Bloomberg
The shift is also casting doubt on bets that the first rate cut will land in June. The probability of a quarter-point reduction in June briefly dropped below 50% on Monday.
Source: Bloomberg
“While June is not off the table, market conviction for a first Fed cut by then is fading,” ING strategists including Benjamin Schroeder wrote in a note.
“In the coming weeks we can expect some Fed speakers to remain vocal about June cuts, but in the end the data will be the deciding factor.”
As WSJ’s ‘Fed whisperer’ Nick Timiraos noted on X, “The sell-side bank and Fed forecaster consensus is now aligned in expecting the first rate cut in June, with the previous outliers recently junking their recession calls.“
“The uniformity here oversells the degree of conviction around a June cut. These have moved a lot in 2024.”
But, The Fed may have another problem.
Something is afoot in the funding markets as the SOFR spread has now been rising for 5 straight days (it should have reverted post-quarter-end) and Fed Fund volumes have slumped…
Source: Bloomberg
And finally, of course, for now, stocks don’t care about the massively hawkish shift in market expectations for Fed action…
Source: Bloomberg
How long (and wide) will this divergence hold?
__________
RELATED
Calvin Klein Owner PVH Crashes On Sales Warning
Market Corrections Matter More Than You Think
*********
(TLB) published this article by Tyler Durden as posted at ZeroHedge
Header featured image (edited) credit: Fed Illustration/org. ZH post
Emphasis added by (TLB)
••••
••••
Stay tuned to …
••••
The Liberty Beacon Project is now expanding at a near exponential rate, and for this we are grateful and excited! But we must also be practical. For 7 years we have not asked for any donations, and have built this project with our own funds as we grew. We are now experiencing ever increasing growing pains due to the large number of websites and projects we represent. So we have just installed donation buttons on our websites and ask that you consider this when you visit them. Nothing is too small. We thank you for all your support and your considerations … (TLB)
••••
Comment Policy: As a privately owned web site, we reserve the right to remove comments that contain spam, advertising, vulgarity, threats of violence, racism, or personal/abusive attacks on other users. This also applies to trolling, the use of more than one alias, or just intentional mischief. Enforcement of this policy is at the discretion of this websites administrators. Repeat offenders may be blocked or permanently banned without prior warning.
••••
Disclaimer: TLB websites contain copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available to our readers under the provisions of “fair use” in an effort to advance a better understanding of political, health, economic and social issues. The material on this site is distributed without profit to those who have expressed a prior interest in receiving it for research and educational purposes. If you wish to use copyrighted material for purposes other than “fair use” you must request permission from the copyright owner.
••••
Disclaimer: The information and opinions shared are for informational purposes only including, but not limited to, text, graphics, images and other material are not intended as medical advice or instruction. Nothing mentioned is intended to be a substitute for professional medical advice, diagnosis or treatment.
Leave a Reply