Former Vice Chairman of the Fed, Richard Clarida, evaluated the interest rate cut expectations in the markets for March.
In its evaluation, Clarida stated that the market bets made in March made the expectations of interest rate cut understandable. “A discount in March, or at least a strong sign that discounts are imminent, would make sense,” he said in his speech.
However, Clarida stated that economic dynamics may change and a faster slowdown in inflation may increase interest rate cut expectations. However, he stressed that persistent price pressures may delay rate cut expectations until later in the year or until a later date.
Clarida also made projections for the Treasury’s 10-year bonds. According to him, bond yields will be affected by fundamental dynamics and inflation. “I think going below this level would be sensitive depending on where we are in the cycle as well as inflation,” Clarida said.
The expectation of a discount began to reflect on market pricing.
According to CME Group’s FedWatch data, markets have begun pricing in expectations that the US Federal Reserve may cut interest rates in March 2024. Given that interest rates are currently in the 500-525 range, markets are pricing in a 33% probability that the Fed will cut rates in March.
