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Interest Rate Cuts? Not in March

Without the benefit of ‘data’ I think it is fair to assume there will NOT be a rate cut in March–I mean the next FOMC meeting is only about 80 days away–is the economy going straight to hell in the next 2 months? Really the FOMC meeting minutes from December didn’t give a hint that the Fed folks are focused on cutting rates. It seems to me that only a crisis will bring rate cuts as early as March–a banking crisis, a full collapse of commercial real estate or huge losses in the non bank lenders (i.e. BDCs). Of course there are any number of global ‘black swans’ out there that can’t be identified that could cause issues.

The CME Fed Watch tool did have the odds of a rate cut in March of 70%–looking this morning it is showing a 64% chance of a cut–dreamers.

The 10 year treasury is trading at 3.96% this morning–up 6 basis points from the close yesterday of 3.90%. I assume these firm rates are in reaction to the FOMC minutes yesterday–if we have a strong employment number tomorrow we will see the 10 year back over 4%.

So now that I have questions–legitimate I think–of how soon rate cuts may come in 2024 there is no hurry to invest every possible dollar. The 10 year treasury is likely stuck in the 3.7% to 4.1% range. We are likely to have some backing and filling on income issues as rates move up and down–gains in December were pretty massive and this digestion should be expected. With some backing and filling in income issues I will watch for preferreds or baby bonds to go on sale–no chasing–set some good til canceled buy orders at slightly lower levels.

13 thoughts on “Interest Rate Cuts? Not in March”

  1. I have been looking at the FOMC Meeting Schedule it is as follows:

    Jan 31-Feb 1
    March 21-22
    May 2-3
    June 13-14
    July 25-26
    September 19-20
    October 31-November 1
    December 12-13

    So let’s assume they are going to cut by 100 BPS in 25 BPS increments and they are not going to cut close to the election. This latter assumption implies they have to do the bulk of the cuts by Labor Day.

    Let’s rule out January. September and October meetings.

    That leaves March, May, June, July and December.

    Let’s assume they will cut in December (seems easy to do given that the election will be out of the way). That leaves 3 more cuts.

    I think once they start they wont be able to pause as the pressure on them will be too great.

    This leaves May, June, July along with December for cuts taking the funds rate down by 100 BPS by year end. If they start in March, I’ll bet they wind up cutting by 125 BPS by year end.

    Personally I would like to see them not cut, but cuts appear to be inevitable.


  2. An early cut is probably bad news not good news. Means economic conditions aren’t going well. Be careful what you wish for.

  3. There was an interesting comment this morning that the easing of financial conditions in the last 60 days is expected to have the same effect as lowering Fed funds 100 basis points. Maybe the expectation of -150-175 bps will be met with improved financial conditions and 50-75 bps of Fed relief. If this is in the ballpark, there should be no Fed relief before June-July?

  4. Ever since TLT peaked a few days back above 100 (think it was like 100.60), it has been on a notable down trend back to 97 now. Longer duration stuff fairly volatile it seems.

  5. Tim,

    Just a small correction, there’s a FOMC meeting at the end of this month, Jan 31. The futures are currently showing a 6.7% chance of a rate cut right then and there.

    1. O – sorry if I wasn’t clear–I know there is one yet this month, but counting that as nothing–certainly not a cut. I suppose the J Powell presser may lay some more groundwork for the future.

      1. I hear you. For what it’s worth I don’t think we’ll get a cut in Jan or March either but it probably wouldn’t take too much bad news to change that calculation (for March, anyway).

        1. O – sometimes I think you folks are mind readers so I don’t need to write things to clarify–but I will try to remember that in the future.

  6. Call me a skeptic, but I don’t think cuts will happen till 3Q or even 4Q24. I guess the data will determine this but, the economy is still steaming along rather aggressively and the amount of $$$ still left in the system from COVID stimulus is significant. With a ton on $$$ still on the sidelines, inflation may still be stickier than expected. Time will tell.

    1. yazzer, We do not know right. I’m still in the 50/50 camp, seeing probability of higher LT rates equal weighted as with lower LT rates.

      If there’s a reversal of sentiment, there will be a violent reaction. I’ve added nothing to holdings since locking gains on about 15K shares in Q4. Patiently waiting for the next event. There’s always another. If rates continue to fall, that’s OK too.

      Happy New Year to all.

      1. alpha – agree 100% – be prepared either way we go. I have another tranche of treasuries maturing on 1/15 and then another on 1/31, etc. If we somehow get a bump up in rates between now and then, I may roll to more treasuries maturing late this year/early next. If not, will park the $$$ in SGOV or similar vehicle till things become more clear.

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