The market is assigning a very low probability of rate cuts to both March and May FOMC meetings, and the expectation of 6 cuts during 2024 is fading away. The rational behind it, is likely related to the fact that inflation has a tough path to reach the 2% target over the next few months. As you can see below, CPI over the months between February and May of 2023 was relatively low, and that makes very difficult for the numbers in 2024 to present a negative CPI growth number, which is a phenomenon known as the base effect. If inflation doesn’t decrease towards 2%, a data dependent Fed won’t find a reason to cut rates, since unemployment os low (the Fed’s second mandate) and the equity market keeps going up. The air pocket between market fundamentals and price, keeps getting wider.
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Chart source: Bianco research
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