U.S. Desk Strategy Market Views

Revising our Fed call as 2 out of our 3 factors for our original view have changed

A confluence of events over the past week, notably the hawkish January FOMC meeting, a stronger January jobs report (but still mixed under the surface) and chair Powell’s tone during the 60 minutes interview, has us revising our 1st Fed cut call. We now expect the first rate cut to come after the Fed has announced its tapering plans for QT (which we assume will happen at the March meeting). It’s clear that the Fed does not want to rush into rate cuts and at the same time believes it can sequence the normalization of rates with QT adjustments first.

Since our view is for higher Treasury yields at the start of the year (out the curve and into the end of Q1), our only change to our forecasts is that we expect one less cut (in essence we move from 175bp cuts down to 150bp total for 2024). If rates can rise further (and towards our 4.25-4.5% level for intermediate rates) we advocate buying dips in USTs as these rate levels won’t stick around for long.

NOTE: Please see PDF link above for revised version reflecting quotes sourced from CBS article link...