LIVE MARKETS-Have markets been too quick to price out a June rate cut?

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HAVE MARKETS BEEN TOO QUICK TO PRICE OUT A JUNE RATE CUT?

Traders may have been too quick to push back expectations on the Federal Reserve’s next rate cut as tariffs may impact the economy nearer term, according to Steve Englander, Head, Global G10 FX research and North America macro strategy at Standard Chartered Bank’s NY Branch.

Traders have pared back expectations of a June rate cut to a 28% probability, from around 69% a week ago, following a better-than-expected jobs report for April. The U.S. central bank is now seen as most likely to resume cuts in July, according to the CME Group's FedWatch Tool.

Englander says that he continues to expect a rate cut in June, although the odds now are not much higher than 50%.

“Confirmation bias combined with data dependence works in favour of a cut, in our view. If data show a deterioration in late May or early June, both markets and the FOMC will see this as evidence that the tariff chickens are coming home to roost. A cut would leave the Fed without responsibility for the downturn, rather than being seen as facilitating a recession,” he said.

The Fed is expected to hold rates steady when it concludes its two-day meeting later on Wednesday with Fed Chair Jerome Powell likely to continue to stress that the U.S. central bank remains data dependent.

(Karen Brettell)

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