The Fed Cannot Cut Rates As Fast As Markets Want [Video]

Authored by Daniel Lacalle,

Market participants started the year with aggressive expectations of rapid and large rate cuts. However, after the latest inflation, growth, and job figures, the probability of a rate cut in March has fallen from 80 to 19%. 

Unfortunately for many, headline figures will support a hawkish Federal Reserve, and the latest comments from Jerome Powell suggest rate cuts may not come as fast as bond investors would like.

For the Federal Reserve, the headline macro figures show a strong economy, solid job creation, a low unemployment rate, stronger GDP growth, and persistent inflation. The real economy shows a weaker picture.

The latest job report is not as strong as it looks. According to the Bureau of Labor Statistics, the labor force participation rate, at 62.5 percent, was unchanged in January, and the employment-population ratio, at 60.2 percent, was also little changed. These two measures showed little or no change over the year and remain below the pre-pandemic level. Furthermore, government jobs added …