Fed rate cut expectations drop to lowest since October: Report

Federal Reserve rate cut expectations this year have reduced to their lowest level since October according to a report that cited data by LSEG. The dampening of expectations follows signs of continued strength in the economy that may cause the central bank to take its own time before rate reductions.

According to the report, Fed funds futures contracts for December on Monday reflected expectations of close to 60 basis points in rate cuts in 2024 as against nearly 150 basis points that had been priced at the start of the year. The potential for a first 25 basis point cut in June stood at 49%, which was lower than 57% seen a week ago, the report indicated citing CME Group data.

Labor market data released earlier indicated a resilient U.S. economy. Unemployment rate dropped to 3.8% in March 2024 compared to 3.9% in February, a report showed. Non-farm payrolls rose by 303,000 jobs last month, the report said citing the Labor Department's Bureau of Labor Statistics.

The unemployment rate has continued below the 4% mark for 26 straight months, which is the longest such stretch since the late 1960s, according to the report.

Although the strong data has not changed the view that the central bank would reduce rates this year, it has reportedly created doubts among market participants about the three rate cuts indicated by the Federal Reserve.

The 10-year U.S. treasury yield touched a four-month high of 4.46% on Monday before retreating to 4.39% on Tuesday. Yield on the benchmark treasuries has been on an upward path since the beginning of this year. At the same time, U.S. equity markets have shown positive momentum this year. The S&P 500 has gained over 9.5% since the beginning of 2024 while the tech-heavy Nasdaq returned over 10% in the period.