Traders Looking to Get Ahead of Fed Again Now Foresee Rate Cuts

Signs of a rapidly deteriorating US economic outlook have spurred bond traders to pencil in a complete policy turnaround by the Federal Reserve in the coming year, with interest-rate cuts in the middle of 2023.

Fed Chair Jerome Powell -- who is widely expected to keep lifting the central bank’s benchmark rate for some time to come -- has pledged he and his colleagues will be “nimble” in setting policy as they assess incoming data. But they would need to be remarkably nimble to keep up with markets.

Less than a month ago, traders were pricing in a cycle that took the benchmark federal funds rate target to more than 4% -- a level last seen in early 2008 -- up from the current range of 1.5% to 1.75%.