Though it took some pretty explicit talk from Fed Chair Jerome Powell, the market finally seems to have gotten the message that a March rate cut isn’t in the cards. Powell’s statement in his Wednesday news conference that “I don’t think it’s likely” a cut will come next month finally shifted the focus further down the road. Traders have moved out the probability of a March easing from around 90% in recent weeks to a coin-flip in the days leading up to this week’s Federal Open Market Committee meeting to about a 1-in-3 chance Thursday. That’s not to say the market still doesn’t think the committee will cut rates sharply this year, but any dialing back now probably won’t come quite as soon as expected. “The January FOMC meeting solidified the Fed’s dovish pivot,” Deutsche Bank chief U.S. economist Matthew Luzzetti said in a client note. “Continued progress on disinflation could still lead to a cut at that meeting. But [Wednesday’s] meeting raised the bar for that outcome. While our baseline remains that the first cut will come in June, we see risks skewed towards an earlier reduction in May.” The policy pivot began in December, when committee members accelerated their anticipated pace of rate cuts this year to three from the previous two. Though it was a small tweak, it helped reflect sentiment that the Fed not only likely was done hiking but also was ready to start taking its foot off the brakes. However, the timing and pace of the cuts remains in flux. Powell’s remarks went a long way to extinguishing an earlier and faster pace than expected, leading Wednesday to a sharp market selloff that sent the Dow Jones Industrial Average down more than 300 points. Recalibrating expectations However, markets recouped some of those losses Thursday as investors weighed the impact of the Fed’s move and its policy intentions. For the most part, Wall Street commentary showed an expectation that the Fed will cut at least four times this year, likely beginning in either May or…
2024-02-01 12:04:00
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