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Fed Easing Cycles: Investors’ Initial Expectations Versus Final Outcomes
At its July 31 meeting, the Federal Reserve (Fed) signaled an openness to cutting rates in September, a view reinforced by Fed chair Jerome Powell’s speech in Jackson Hole in August. A subsequent selloff in the equity market triggered by weak US data led fixed-income traders into pricing the Fed easing rates by around 225-250 basis points (bps) over the next two years. (Figure 1). Such expectations can shift quickly. Over the past two years, investor expectations for movement in Fed rates two years ahead have fluctuated from a low of 2.75% to as high as 4.75% (Figure 2). charts Given current market expectations ... (full story)