Post-FOMC, We See Higher Probabilities for March Cut Than Consensus

On Wednesday, January 31, the Federal Open Markets Committee announced that it would keep its target-rate range unchanged at 5.25%-5.50%. Just as with its decisions since last July, this was in line with the market’s expectations.

The Federal Reserve had made a dovish pivot at the previous FOMC meeting on December 12-13, and investors responded accordingly. At the time, many anticipated cuts to begin as early as March: Fed futures trading in the first weeks following the meeting implied that the market had assigned a probability of around 75% to this scenario. 

When the minutes of the December FOMC meeting were released on January 3, Fundstrat Washington Policy Strategist Tom Block noted the use of the phrase “peak for this policy tightening cycle.” In Block’s view, this was essentially code for “there will be no more hikes for this cycle”, despite other language included in the minutes so as to keep the Fed’s options open. 

Nevertheless, the minutes, along with a series of public remarks by Fed officials that were widely perceived as hawkish, helped dampen earlier expectations of a March rate cut, with an implied probability of this event falling to below 40% this week. It spiked briefly on the morning of FOMC day, January 31, after New York Com...

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