The Fed decision is on Wednesday and WSJ Fedwatcher Nick Timiraos is out with his latest. Here’s the key passage:
Fed officials aren’t likely to entertain serious conversations about when to cut rates this week—and potentially for several months unless the economy weakens more than expected.
The market is fully priced for a May 1 cut and about halfway there for the March 20 meeting. Those odds have declined since Friday’s non-farm payrolls report.
The report hints at something that market watchers have been eyeing for months: The Fed’s history of cutting around six months after the final hike.
This is a conversation that’s been ongoing since before the Fed even finished hiking and I wonder if too many market participants are leaning too hard on history. That said, betting against history hasn’t been a great bet.
Timiraos hints at the final debate:
One camp says that getting inflation down from a high of 7.1% last year to 3% in October is going to prove much easier than lowering it from 3% to the Fed’s 2% target. That is because most of the drop so far has reflected the unwinding of pandemic-related bottlenecks and worker shortages….Another camp doesn’t assume the last mile will be particularly difficult.