Summary: Rates cut bets rose 77% in March.
On December 14, the market continued to increase bets on the Federal Reserve's interest rate cuts, and the interest rate** linked to the date of the Fed's interest rate meeting showed that the market priced the Fed in six rate cuts by the end of next year, or 150 basis points.
After the Fed signaled the end of its tightening, the interest rate ** market raised its bets on a March rate cut to 77% at one point
The U.S. interest rate market on Wednesday raised the chances of a Fed rate cut from March to 77% at one point, after the Fed's interest rate release signalled the end of its tightening campaign.
Ahead of the Fed's latest policy statement and the economy**, the market is pricing in a roughly 40% chance of a rate cut in March. The interest rate market is pricing in a rate cut of more than 100 basis points next year, according to the FedWatch tool from the London Exchange Group (LSEG).
The Fed kept interest rates unchanged and explicitly acknowledged the fact that inflation has "eased over the past year" in its latest policy statement, and also said it would watch the economy to determine if "any" further rate hikes are needed.
17 out of 19 Fed policymakers** have policy rates below current levels by the end of 2024 – the median shows that the policy rate range will be up from the current 525%-5.50% down 75 basis points.
Tom Simons, an American economist at Jefferies, said in a note: "The policy statement has changed relatively little from the previous two times, but the subtle wording changes are significant. The addition of the word 'any' before the possibility of further tightening implies a less conviction that further tightening is needed. Given the progress made towards the dual goal shown by recent data, the end of the current rate hike cycle seems certain. ”
At a press conference after the latest two-day policy meeting, Fed Chair Jerome Powell confirmed the message of the 'dot plot' (i.e., the distribution of interest rates** among policymakers) that the Fed is likely to have completed its rate hike campaign.