Waiting for Rate Cuts

Portfolio Purgatory. Risk assets tumbled this morning off a hotter-than-expected inflation data release for the month of March. When are rate cuts coming, and what impact will they have on your bags?

Investors have gotten bulled up in recent months on the probability that inevitable rate cuts will ease economic conditions in the future and provide fuel for risk assets, but America’s Federal Reserve has long maintained that it will keep interest rates high to combat inflation.

Today’s elevated inflation prints, which came in ever so slightly above analyst expectations, seemingly caused investors to challenge these assumptions…

Market participants have now priced out the June rate cut, reducing the total number of expected cuts in 2024 to two. Yields on the US 10-year note surged to 2024 high as traders began to digest the fact that rate cuts may be coming later than expected.

Futures on the broad market S&P 500 began trading lower immediately upon the release of inflation data at 8:30 EST, causing cash markets to open 1% below yesterday’s close.

Unsurprisingly, crypto assets were also impacted by the data release, with their enhanced volatility in comparison to stocks was on full display as popular tokens experienced sharper downside and a more pronounced recovery.

Rate cut expectations may have been slightly delayed, but even President Biden is confident that they will occur sometime in 2024.

Despite official government data sources continuing to suggest that inflation is running too hot, decentralized data service Truflation indicates that the year-over-year percentage increase has remained under the Fed’s 2% target throughout April, lending credence to POTUS’s assertion.

While prevailing sentiment maintains that rate cuts will be unequivocally bullish, it remains to be seen whether this time will be different and they can actually combat an economic decline that will lead to their utilization, considering their de minimis impact in recessions past…