The Case of The Disappearing Rate Cuts

The Fed expected to be able to cut rates 3 times in 2024 as recently as March. Financial markets agreed. But the data that's come out since then has everyone singing a different tune.  This week's data was more of an afterthought compared to last week's. The chart above pertains to Fed rate expectations, and that's not exactly the same as longer term rates like mortgages and 10yr Treasury yields.  The latter saw a bit more volatility this week. Monday's Retail Sales data was much stronger than expected and markets reacted immediately.  Tuesday's data was consequential, but it was followed by a speech in which Fed Chair Powell had an opportunity to provide some updated thoughts on the rate outlook.  After all, the Fed hadn't seen the most recent CPI data (and several other strong reports) at the time the last round of rate projections came out in March. As the market expected, the tone is evolving.  While Powell and the Fed repeat that the rate path depends on economic data, it's no surprise to see recent comments acknowledging a surprising amount of strength in the recent data.  Stronger data means fewer rate cuts.  Powell went as far as saying there was new uncertainty as to whether the Fed will even be able to cut in 2024. Two days later, NY Fed President John Williams struck similar tone.  Just last week, he had pushed back on the CPI data, saying the Fed wasn't surprised by setbacks in the inflation data.  This week's comments did more to acknowledge the other side of data dependency.  Specifically, Williams said the Fed could hike again if the data called for it.