I captured rate cut expectations before and after the Friday jobs reports. Let’s take a look.
The current rate is 5.25%-5.50% effectively 5.37%.
Rate Expectation Percentage Point Change
- Sep 2024: -0.13 PP to 4.94% (-0.43 PP from current) 1.7 quarter-point cuts
- Nov 2024: -0.30 PP to 4.53% (-0.83 PP from current) 3.3 quarter-point cuts
- Dec 2024: -0.34 PP to 4.21% (-1.16 PP from current) 4.6 quarter-point cuts
- Jan 2025: -0.36 PP to 3.98% (-1.39 PP from current) 5.6 quarter-point cuts
- Mar 2025: -0.38 PP to 3.71% (-1.66 PP from current) 6.6 quarter-point cuts
Those odds were smack in the middle of volatility.
The CME website now shows data as of August 1 (no change on Friday), so they have something messed up.
The chart above reflects the huge volatility we saw in bond yields on Friday.
Dramatic 1-Day and 1-Week Changes in Bond Yields
For discussion, please see Dramatic 1-Day and 1-Week Changes in Bond Yields, What Happened?
Are too many cuts priced in or not enough?
That’s the question. I expect two cuts in September. Looking out to next year, I think too many cuts are priced in.
Recession Has Started
On July 8, I wrote Weak Data Says a Recession Has Already Started, Let’s Now Discuss When
I’ve seen enough. A recession has started. Let’s discuss starting with a very good indicator that has few false positives and no false negatives.
My follow-up post was on August 2.
August 2: The McKelvey (Sahm) Unemployment Rate Recession Rule Just Triggered
A recession indicator based off rising unemployment triggered in July. Claudia Sahm, a former Fed economist, takes credit for an indicator she did not invent. Let’s discuss.
Weakening data explains the recession call. Yield curve action provides a confirmation signal.