Stock Market Today: Dow finishes above 42,000 for first time in history after Fed's big rate cut
The latest batch of quarterly forecasts from the Federal Reserve showed policy makers have had a change of heart since June about the pace of interest rate cuts in 2024.
The latest iteration of the Fed’s “dot plot” penciled in two more quarter-point cuts before the end of the year, for a total of 100 basis points of easing in 2024. Previously, officials expected just one cut this year.
Meanwhile, traders are still betting that the central bank will be even more aggressive.
According to the latest data from CME Group’s FedWatch tool, interest-rate futures are still pricing in 75 basis points of cuts before the end of the year as the most likely scenario. This would require another 50 basis point cut in either November, or December.
The gap has caught market-watchers attention.
“Interestingly, the CME’s FedWatch Tool shows that market participants are betting on a further 75 bps of cuts before year-end, so there’s still a difference of opinion out there,” said David Morrison, senior market analyst at Trade Nation.
History shows investors should take the market’s expectations with a grain of salt. Apollo’s Torsten Slok said on Thursday that the market narrative surrounding interest rates is almost always wrong. He also produced a chart showing how investors’ expectations for where rates will end up has fluctuated since the Fed started raising rates in March 2022.
To be sure, others have shown that the Fed’s own forecasts aren’t a very reliable guide, either.