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Finance market prices a single interest rate cut for 2024 in the U.S.

Finance market prices a single interest rate cut for 2024 in the U.S.
Vinicius Barbosa

The finance market has dramatically shifted its expectations for U.S. interest rates in 2024, now pricing in just a single cut. This change comes as inflation remains sticky, forcing investors to readjust their portfolios and prepare for a potentially prolonged hawkish monetary policy.

According to a Bloomberg report, the market now expects only one interest rate cut for the entire 2024. This is a significant shift from the previous expectation of two cuts, as posted by The Kobeissi Letter on X. In particular, these cuts were priced just 10 days ago when April CPI inflation came in at 3.4%.

Moreover, the change in expectations comes as U.S. PMI data on May 23 showed that inflation remains sticky. Since January, the market has priced out a total of five interest rate cuts from its expectations.

Furthermore, Goldman Sachs CEO David Solomon said on May 22 that he expects zero cuts this year. The bank’s economists have also pushed back their call for a rate cut from July to September.

Interest rate expectations for the Fed’s next meeting

Meanwhile, Finbold gathered data from CME FedWatch showing that 99.1% of the market expects the interest rate to remain between 525-550 basis points for the June 12 meeting. Investors have previously drastically changed their forecast for this meeting, up from the over 45% seen a few months ago.

Target Rate Probabilities for 12 June 2024 – FED Meeting. Source: CME FedWatch

Consequently, fears of rebounding inflation are forcing investors to prepare for a scenario few expected to confront in 2024. Strong economic reports suggest that inflation could creep back if the U.S. central bank lowers the interest rates prematurely.

As a result, many investors who piled into stocks, cryptocurrencies, and bonds over the last few months, hoping for policy easing, are now scrambling to readjust their portfolios. Despite the S&P 500 index standing near record highs, equity investors are loading up on insurance in the options market and pouring money into popular inflation hedges such as energy stocks, gold, and silver.

In conclusion, the finance market is pricing in a single interest rate cut for 2024 in the U.S., a significant shift from previous expectations. Investors are now preparing for a likely hawkish policy that could slow down the economy longer than previously desired.

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