As a whole for this year, traders are now looking at 40 bps worth of rate cuts. That is a step up from earlier this week, where it was roughly 31 bps. As for the timing of the first rate cut, a 25 bps move is now fully priced in for November at least. The odds of a move in September are at ~78% currently and that will be the one to watch.
The US jobs report will be the first key hurdle today followed by the ISM services PMI. Those will be two key drivers that will influence the Fed pricing above.
A move in June and July can be safely ruled out at this stage. So, all eyes will be on whether the Fed will have enough to work with to start acting in September. And if not, we’ll have to see if they might act in November instead.
In the bigger picture, I still think it’s too early to be moving on the data we’re getting today. It’s only May and what matters more will be the next few inflation data releases.
But Powell did say that they are watching for any weakness in the labour market closely. As such, the unemployment rate and the wages numbers might be the more crucial points to focus on later.