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© Reuters
By Yasin Ebrahim
Investing.com – Rate cut bets took a big leap forward this week, with a March cut now more likely than not as the deflationary winds are expected to continue to blow through the economy, forcing the Fed to pivot into easing mode to ensure the economic landing from the fastest pace of rate hikes in four decades is soft rather than unnecessarily bumpy.
“The odds of a March cut jumped to 57.9% from 21.6% the prior week, according to Investing.com’s First cut will blunt real rates, keeping soft landing insight.
The need for speed on rate cuts will likely be driven by concerns that a real fed funds rate – adjusted for inflation and a more accurate gauge of how much it costs companies to borrow money – running too hot could bring down growth by more than expected, potentially tipping into recession,” Jefferies adds, forecasting that deeper rate cuts will follow to “prevent significant increases in the unemployment rate.”
“The recent wave of positive economic data including the upward revision on Q3 GDP to a 5.2% annualized pace has some struggling to determine how the economy is likely to fall into the kind of trouble that will demand a Fed rescue,” Deutsche Bank, however, believes the full impact of the rate cuts delivered so far, the fastest in more than four decades, is yet to leave big dent in the economy.
“With the lagged impact of rate hikes taking effect, we can already see clear signs of data softening,” Deutsche Bank said, pointing to the October monthly jobs report that showed an uptick in the unemployment rate to highest level since January 2022, a pick-up in credit card delinquencies, and a rise in high yield defaults.
Others agree, and expect that strength in consumer spending, which has continued to confound economists, and underpin economic growth, will likely wane in the weeks ahead.
The turning point in the labor market, which has supported consumer spending, will likely come the end of this year or early 2024,