For months, market watchers have said interest rate cuts are just around the corner, even in the face of mounting odds against that notion. Today, rate-cut forecasts face their biggest test of the year so far.
March’s Consumer Price Index data drops this morning, and an unexpected acceleration in inflation could mean another reset of expectations for the market, writes Business Insider’s Matthew Fox.
Before the report's release, the odds-on favorite for the first rate cut is the Fed’s June policy meeting, according to the CME FedWatch Tool. But if the report is hotter than expected — consensus is for core CPI to jump 3.7% year-over-year and 0.3% month-over-month — that timeline will likely get pushed back.
Yet, even that June timeline has seen dwindling odds this year. Markets think the chances of a June cut are down to about a coin toss, a drop from 70% earlier this year.
It’s been that kind of year for the markets. Aggressive expectations for how quickly rates would come down — six cuts in a year and a Goldilocks economy— have unraveled due to strong economic data that’s given the Fed pause.
Further complicating matters is labor-market data offering conflicting perspectives, with unemployment low, but hiring surveys showing weakness. That puts pressure on today’s report, described by one market watcher as “paramount.”
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