After dialing back expectations for 2024 Federal Reserve interest rate cuts substantially since the start of the year, markets will get an update of Fed thinking when the Committee refreshes its dot plot on Wednesday. The dot plot is where each Fed official believes where the overnight rate may be at a given point in time. Some will argue it is a forecast, others not.
The Committee has been consistent in its view that there will be only two or three interest rate cuts in 2024, about half the number the market has suggested. This disparity between the market and the Fed has lasted for the longest period and is the greatest in recent memory.
The Fed is expected to keep rates unchanged for the fifth straight month with policymakers not yet telegraphing confidence is headed toward sustaining their 2% target. Last week’s inflation data exceeded expectations and, in some regards, indicated rising not falling prices.
At this juncture, it is expected the Fed’s dot plot will remain unchanged…50 to 75 bps of reduction in 2024. Will it change its 2025 dot plot of additional 100 bps of reduction by 2025’s year end?
On Friday, Bloomberg quantified how many headlines that the Fed is going to ease. Its propriety algorithm, the Natural Language Processing (NLP) analysis of Fed communications, indicated that are more than 60,000 headlines stating the FRB is headed to a reduction in July, but not yet there.
It is widely known that over 90% of equity trades are done algorithmically, based upon headlines and momentum. What happens if the monetary policy headlines turn overtly bearish? As widely accepted the catalyst for the advance since mid-November was the unshakeable belief the Fed will ease.
Commenting on Friday’s market activity, swaps are now suggesting the first interest rate reduction will occur in July, the result of the data that has pushed yields on both the two-year and ten-year Treasury 20 bps higher for the week.
Equites were marginally lower, the NASDAQ baring the brunt of the selling, perhaps the result of a change in monetary policy assumptions. Considerable attention was given to the mammoth amount of options and derivatives that were scheduled to expire; $5.3 trillion. The “triple witching hour was largely a non-event.
The economic calendar is comprised of several housing statistics and the Index of Leading Economic Indicators and the a fore-mentioned FOMC meeting.
Last night the foreign markets were up. London was up 0.12%, Paris up 0.03% and Frankfurt up 0.18%. China was up 0.99%, Japan up 2.67% and Hang Seng up 0.10%.
Dow and NASDAQ futures are flat and up 0.60%, ahead of the Fed meeting. The NASDAQ 100 advanced after it was reported that APPL is in talks to build GOOG’s AI engine into the iPhone. The 10-year is up 1/32 to yield 4.31%.
