US rate cut forecasts draining out of the markets

Fed funds futures contracts for December now show expectations of around 60 basis point cut in total this year, compared to the 150 basis points priced at the start of 2024. The CME FedWatch tool has also dropped. Now 50% expect a 25 basis point cut in June, compared to above 60% a week ago. The Fed has projected it will cut rates by 75 basis points this year. but we recently heard some of its members becoming more and more cautious. Last Wednesday for example, Atlanta Fed President Raphael Bostic, said rates should likely not be reduced until the fourth quarter of this year, and he would only go for one 25 basis-point cut in 2024. Yesterday, US Treasury yields hit their highest level since late November, which sent USD/JPY higher, very close to its 34-year low.

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The Federal Reserve

Federal Reserve interest rate cuts, influenced by stronger-than-anticipated jobs reports, which may delay the cuts. With the Fed funds futures for December indicating a forecast of 60 basis point reductions, a significant decrease from the 150 basis points anticipated at the start of 2024, the market sentiment is shifting. The CME FedWatch tool indicates a divided expectation for June's cut. Commentary from Atlanta Fed President Raphael Bostic suggests a cautious approach, with potential rate reductions not expected until Q4 2023, targeting a 125 basis point cut in 2024. Additionally, the commentary touches on recent movements in the US dollar against the Japanese yen, reaching levels not seen in 34 years, driven by US Treasury yield spikes.