Is three rate cuts a reasonable baseline for 2024? – US Market Wrap

The world’s largest bond market prolonged this year’s selloff, as equities fell from a record high on expectations that the Federal Reserve will not cut interest rates soon.

Another report indicating that inflation is “stickier” than expected weighed on Wall Street sentiment, with the producer price index rising on a sizable increase in service costs. Traders found little encouragement to bid up the market at a time when the Fed is approaching what is being referred to as a difficult “last mile” towards its goals.

The S&P 500 halted a five-week winning streak, while the Nasdaq 100 underperformed due to losses in big names like Meta Platforms Inc. and Apple Inc. Two-year yields rose seven basis points to 4.65%, and swaps are pricing less than 90 basis points of rate cuts in 2024, down from around 150 basis points at the start of February. US markets will be closed on Monday for Presidents’ Day.

The recent data has caused traders to scale back their once-aggressive rate-cut bets so much that their expectations are now approaching the Fed’s own prediction. At the time of the last quarterly update in December, policymakers’ median projection was for 75 basis point reduction this year.

Fed Chair Jerome Powell and his colleagues have been signalling that they are on a wait-and-see mode before deciding to embark on policy easing. Two members who will vote on policy in 2024 have indicated that they are open to three interest-rate cuts this year if inflation continues.