Last week witnessed a fleeting moment of alignment between the market's expectations and the Federal Reserve's stance on monetary policy easing, a harmony that quickly dissipated.
Investors, who had previously adopted a more dovish outlook than Fed officials for much of the year, have now shifted their stance. Current forecasts from the market indicate an anticipation of approximately 65 basis points in rate cuts for 2024. This is slightly less aggressive than the 75 basis points reduction projected by the median of forecasts following the Federal Reserve's meeting on March 19-20.
Benoit Gerard, a rates strategist at Natixis in Paris, expressed surprise at the market's willingness to adopt a more hawkish perspective than the Fed, especially in light of recent economic indicators.
Recent economic data has played a significant role in this shift. For instance, income and spending figures for February revealed continued strong consumer spending. Moreover, a report on Monday showed that U.S. manufacturing activity expanded for the first time since 2022, surpassing all predictions in a Bloomberg survey of economists.
Following the release of the consumption data, Fed Chair Jerome Powell remarked that the figures aligned closely with the central bank's expectations, reiterating that there is no rush to cut interest rates.
Since the release of Monday's manufacturing data, no Fed official has commented on monetary policy. However, several Fed representatives, including New York Fed President John Williams, Cleveland Fed President Loretta Mester, and San Francisco Fed President Mary Daly, are scheduled to speak later on Tuesday.
