It appears that the market doesn’t have a strong opinion yet about what official rates will be in a year, but investors are eliminating the tails of the distribution of outcomes: the expectations for rates below 3% or above 6% are basically zero. In other words, they expect the Fed not to move much from where we are today. Little by little the Fed is running out of options to cut this year without getting into political territory. And the market, unemployment and even inflation are not giving enough reasons to act one way or another. It seems the Fed is waiting for a clear signal to be able to justify its data dependency, like a boxer waiting for his opponent to punch first. The conclusion is then that only a surprise will make the Fed move, and then the whole system will react.
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