Fed Swaps Reduce the Odds of A March Interest-Rate Cut to About 50% – US Market Wrap

Stocks fell alongside risk assets, while bond yields rose on speculation that the Federal Reserve will not cut interest rates as the economy shows signs of resilience.

A solid reading on retail sales fueled concern about Wall Street’s bold dovish bid at a time when good economic news isn’t doing much for policy. And, with central bank officials recently sounding more cautious about the prospects for easing, it proved to be the ideal recipe for traders to push back the timing of the first Fed move, assigning lower odds of a rate cut in Q1.

Strong consumer spending has helped to propel the economy in recent weeks, according to the Fed’s Beige Book survey. Fed swaps now show the probability of easing as early as March at around 50%, down from 80% on Friday. The move also reflected a drop in UK bonds after data showed inflation increased, prompting traders to reduce their bets on the Bank of England easing.

Treasury two-year yields exceeded 4.3%. The dollar rose. The S&P 500 extended its 2024 losses. Wall Street’s “fear gauge,” the VIX, reached its highest level since November.

In December, US retail sales increased at the fastest rate in three months, capping a strong holiday season that suggests consumer resilience as the new year begins. Separate data showed that homebuilder sentiment rose the most in nearly a year in January, as lower mortgage rates increased customer traffic, sales, and the demand outlook.