There’s a widening gulf in expectations between financial markets and the Federal Reserve centered on traders’ doubts that the central bank will be able to stick with its higher-for-longer theme on interest rates.
Moreover, those traders also boosted the chances of a rate cut by May, to 40.2% as of Friday. Meanwhile, Treasury yields were mixed on the day, with even the policy-sensitive 2-year rate BX:TMUBMUSD02Y little changed.It’s not uncommon to have a divergence of expectations between the market and the Fed, with traders continuing to rely on a much-talked-about U.S. recession to cool inflation.
Indeed, one forecast from within the central bank — the Atlanta Fed’s GDP Now estimate — pointed to a 2.3% growth rate for the fourth quarter as of Friday. U.S. stocks were mostly lower Friday afternoon following September’s PCE report. The S&P 500 was down roughly 10% from its closing high of 4,558.96 seen on July 31 and on pace to close in correction territory.