Markets may be premature; strong inflation persists, and massive spending looms. A significant Fed rate pivot might fuel inflation further.

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Interest rate futures indicate expected rate cuts from March 2024, with a growing chance of cuts starting in January. Three weeks ago, markets anticipated an additional rate hike and cuts in June 2024; now, there’s a 2% chance of an extra hike and five expected rate cuts in 2024.

Despite these market shifts, Fed Chair Powell called expectations of rate cuts “premature.” This stance contrasts with ongoing robust inflation and projected substantial deficit spending.

The current market conditions raise questions about the accuracy and timing of reactions. Premature and extensive rate cuts by the Fed could potentially worsen inflationary challenges. Recent economic indicators, including a $42 meal for two at Five Guys, adding $1 trillion in fiat debt in 100 days, and the Federal Reserve’s struggles with U.S. Treasury sales, emphasize the complexities of the economic environment. The trustworthiness of the economic system is in question, especially with gold surpassing $2,000, China’s Communist Party accumulating gold, and the absence of a risk premium for the 10-year yield.



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Here comes sticky inflation once again. Why are we pricing 5 cuts by 2025?

 

h/t DesmondMilesDant

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