Bond Traders Prep for New Dot Plot, With Three Cuts in Question

After dialing back their expectations for 2024 Federal Reserve interest-rate cuts substantially since the start of the year, bond traders on Wednesday will take their next cue when policymakers release their own updated projections for their benchmark.

Coming on the heels of a consumer price index report that showed higher-than-expected core inflation for a second straight month, there’s a lot riding for the Treasuries market from the Fed’s new so-called dot-plot. The median forecast of Fed policymakers in December showed three quarter-point rate reductions for 2024, and derivatives contracts show slightly more than that priced in as of Wednesday.

The question is whether policymakers maintain that expectation or potentially scale it back in the wake of price increases that remain well above their 2% inflation target.

Bank of America Corp. strategists warn it would take only only two officials to switch to two cuts for the median dot to move higher — something they see as a spur to Treasury yields. Benchmark 10-year yields already hover at around 4.2%, well above where they ended last year.

“The market is really sensitive now to any changes in the dot plot,” said Meghan Swiber, Bank of America’s director of US rates strategy. “Everyone is looking at all the recent the data and wondering about how it is going to play out with regard to potentially impacting officials’ quarterly forecasts and the Fed’s decision-making overall.”

Investors Focused on Any Changes in Fed Dot Plot