Since the end of January, the market has experienced a remarkable U-turn on its interest rate expectations, and that’s no surprise. On Jan. 31, we saw the first United States Federal Open Market Committee (FOMC) meeting of the year and, contrary to expectations, policymakers took a decidedly hawkish stance, all but ruling out the chances of an interest rate cut in March. Then, on the subsequent Friday, U.S. labor data came in far stronger than expected.
Now, 83.5% of market participants expect the Federal Reserve to hold rates at their current level of 5.25%-5.5% in March, according to the CME FedWatch Tool: a remarkable change of heart from just a week ago, when more than half of market participants were convinced that rate cuts were imminent. Indeed, even a May rate cut appears less certain now, with 70% of respondents to a recent CNBC Fed Survey forecasting a cut no earlier than June.
With the labor market as strong as it has been, this gradual loss of confidence in a March rate cut is to be expected. The January unemployment report revealed that the U.S. economy added a whopping 353,000 jobs for the month, nearly doubling analysts’ expectations of 185,000. Unemployment is sitting at 3.7%, a multi-year low. And while there’s some anecdotal talk of layoffs, we have yet to see any meaningful weakness filter through to the broader employment metrics.
Monthly U.S. unemployment rate. Source: Trading Economics and the Bureau of Labor Statistics
In short, the U.S. economy is still going gangbusters, despite interest rates hovering at a 22-year high since July 2023. And so, as Federal Reserve Chairman Jerome Powell stated during the post-FOMC meeting press conference, the Fed will proceed with caution until members are certain that the threat of inflation has receded once and for all.
And it appears global markets have accepted this at face value. The S&P 500 index has barely moved since the FOMC meeting, while Bitcoin (BTC) has remained maddeningly stable between $42,000 and $44,000. In fact, we’re getting close to 150 days in a $5,000 BTC trading range.
Bitcoin monthly returns since 2013. Source:…
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