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US Bond Investors Anticipate 2024 Fed Rate Reductions

Social Security Benefits
Social Security Benefits; Source- The US Sun

As indications of slowing U.S. economic growth and lowering inflation became increasingly apparent, bond investors began pricing in the possibility of an impending reduction in interest rates by the Federal Reserve by the first half of 2019.

Although the U.S. central bank is unlikely to raise rates due to a worsening growth outlook, inflationary pressures may eventually force the bank to shift toward loosening monetary policy.

The Fed’s favorite inflation gauge, the personal consumption expenditures (PCE) price index for the United States, was released on Thursday. This could be another step toward the impending policy change.

simple method for estimating future trading prices for the benchmark overnight interest rate set by the US central bank. The CME FedWatch Tool revealed on Thursday that the market has priced in roughly a 45% possibility of a rate decrease at the meeting on March 19–20, 2024, and that probability will rise to about a 75% probability at the meeting on April 30-May 1. According to LSEG statistics, the rates market will witness reductions of approximately 100 basis points (bps) by the end of 2024.

Over the past few weeks, the current yield curve, which represents the difference in yields between US Treasury notes maturing in two and ten years, has begun to narrow. Many people believe that an inversion of this portion of the curve indicates the presence of a recession.

SOFR FUTURES

US Bond

source: CNN

In order to predict future changes in the Federal Reserve rate, bond investors frequently monitor the Secured Overnight Financing Rate (SOFR) futures. A fifty percent possibility of a twenty-five basis-point cut at the March meeting is placed into the March 2024 SOFR futures.

At least one Fed cut has been priced into the June 2024 SOFR futures, and there is a 76% chance of two rate reductions of 25 basis points each.

After a rate-fixing scandal involving bankers at many large financial institutions surfaced in 2012, the previous benchmark rate, Libor, was replaced on June 30 by SOFR, a measure of the cost of borrowing cash overnight. These days, it forms the foundation of US corporate borrowing.

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