The Federal Reserve's monetary policy directions in December and January 2024 have become the focus of the market. According to the latest data from the CME "FedWatch", the probability of the Federal Reserve cutting rates by 25 basis points in December has risen to 85.8%, while the probability of keeping rates unchanged is 14.2%. This data indicates a general market expectation that the Federal Reserve will implement a rate cut in December to address the pressures of economic slowdown.
Recent economic data, particularly the robust employment report, have heightened market expectations for a rate cut. OIS market data shows that the probability of a 25 basis point rate cut on December 18 is about 80%, whereas before the release of non-farm payroll data, this probability was only 64%. With the release of employment data, investors have significantly increased their bets on a Federal Reserve rate cut.
Looking ahead to January 2024, the market anticipates that the Federal Reserve will continue to adopt accommodative policies. By January, the probability of maintaining current rates drops to 10.5%, with a 67.5% probability of a 25 basis point cut, and a 22% probability of a 50 basis point cut. Economists at Morgan Stanley predict the Federal Reserve will cut rates by 25 basis points in both December and January, providing the market with a clearer policy direction.
Despite the growing expectation for rate cuts, investors remain somewhat cautious about the extent of the cuts. The OIS market anticipates a cut of 20 basis points in December, reflecting the division in market opinion on Federal Reserve policy. In the coming weeks, as more U.S. economic data is released, the direction of the Federal Reserve's monetary policy will have a profound impact on global markets, and investors will continue to watch the upcoming economic data and statements from Federal Reserve officials closely.
