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March Madness

As anticipated, the FOMC meeting ended with no change in official rates. However, in the pres a conference, J Powell said: “I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting”, which in plain English means: inflation is not low enough, the markets are trading at all time highs and unemployment is very low; so why do we need to lower rates? The market, however, was pricing that rate cut with a medium level of confidence, and its hopes were crushed. As it stands today, the odds for a cut in March are 34%, down from 90.1% in December. Equity markets adjusted yesterday accordingly, although Fed days tend to be more volatile than regular trading days. Tomorrow, the unemployment rate will be published and the consensus points to 3.8%, a small increase vs prior month. If there are surprises in that number, the odds will adjust accordingly.

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Chart source: WSJ

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