Fed rate cut bets dip: will markets adjust to cooling expectations?

Money markets have recently dialed back expectations for a Federal Reserve interest rate cut in 2024, signaling a shift in investor sentiment amid evolving economic conditions.

Interest-rate swaps indicate traders now assign a roughly 70% chance of a quarter-point rate cut by September, down from about 90% just days earlier. This cooling in rate cut bets suggests markets are adjusting to signals of a more resilient economy or less aggressive Fed easing.

Meanwhile, major stock indices have continued to climb, with the Dow Jones Industrial Average rising 1.1% for a gain of 443 points, and the S&P 500 advancing 1% to reach 6,000, its highest level since February. The Nasdaq and S&P 500 also posted back-to-back weekly gains, reflecting sustained investor confidence despite the tempered rate cut outlook.

"Money markets trimmed bets that the US Federal Reserve will cut interest rates this year," highlighting a recalibration of expectations.

The market's reaction underscores the complex interplay between monetary policy expectations and equity performance, as investors weigh the Fed's future moves against economic data and corporate earnings.

As the Fed's policy path remains uncertain, traders and investors will closely monitor upcoming economic indicators and Fed communications to gauge whether the central bank will pivot or maintain its current stance.

This evolving landscape raises questions about how markets will adjust if rate cuts are delayed or scaled back, potentially impacting borrowing costs, investment strategies, and overall market momentum.

Money markets have reduced expectations for a Federal Reserve rate cut this year, with traders now assigning a 70% chance of a quarter-point cut by September, down from 90% just days earlier. This shift reflects cooling market sentiment amid steady gains in major stock indices.