July Rate Cut Odds Still 100%

-edited

Despite today's jobs report, Implied July rate cuts odds are still 100% but a second cut is now priced out.

A reader asked if I still thought there would be a rate cut in July.

The short answer is yes.

CME Fedwatch shows the odds of a 50 basis cut declined from 29.2% to 4.9% but I never thought there would be a 50 basis point cut in the first place.

The long answer is the odds need to drop to the 50-60% area before there is a reasonable chance of no cut. If the odds drop under 50% then the Fed likely will not cut.

What happens depends on economic reports between now and July 31.

One good jobs report (see Job Growth +224,000 Tops Expectations, Wage Growth Disappoints), did not change my expectations at all given that I never forecast two cuts.

The yield on the 10-year Treasury note is barely back above 2%, 2.04% to be precise.

Futures suggest there is a 100% likelihood of a cut, but realistically, it's about 90% now, down from 95%.

Mike "Mish" Shedlock

Comments (10)
No. 1-7
Sechel
Sechel

I agree based on the market, but what is the rationale if the economy is still strong?

thimk
thimk

i am incredulous , a stellar jobs report barely moved the dial. conditions don't seem to warrant any decrease in interest rates. Any decrease will be viewed as political and blamed on headwinds . historically have the feds ever been this preemptive ?

Casual_Observer
Casual_Observer

The rate cut seems to be more because of the global imbalance in bonds yields and not the US economy in particular. The dollar is the defacto global currency more than ever before. My guess is the Fed is anticipating a bond crisis somewhere and ready to cut rates and increase liquidity if necessary. This could also be b/c of private bonds as well.

Tengen
Tengen

These upcoming cuts should demonstrate to people that the economy is weaker than reported. There's a huge disconnect somewhere, and it's not on the Fed side where everybody from Trump on down has been howling at them to cut. They only made it to 2.25% in their attempt to normalize! That speaks volumes.

Hard to believe some take the BLS numbers seriously, where they are free to quietly revise downward and continually move goalposts (one hour per week counts as employment?) to make numbers more palatable.

gflop
gflop

30 years of zero rates and central bank buying of financial assets did not fix Japan's problems, and it won't fix anything in the USA either.

It will wreck the retirement savings of millions of taxpaying US citizens, who will demand a pound of flesh from central bankers who's pensions are "guaranteed" by the same taxpayers the central bankers cheated

Whether one believes the economy is strong or weak, manipulating interest rates won't help, and we all know it