Most Traders Saw Only a 50% Chance of a December Rate Cut 

The Federal Reserve’s decision to cut interest rates in December has become uncertain as traders assigned a roughly 50% probability of a 0.25% reduction, down from 80% earlier in the week. Resilient U.S. economic data, stronger-than-expected retail sales and surged 10-year treasury yield, have empowered Fed officials to adopt a more cautious approach to monetary easing.

The yield on the 10-year Treasury surged to 4.5%. Impacted by the rising retail sales figure in October, the 2-year policy-sensitive yield climbed to 4.37%. Regarding rebounding data, Fed Chair Jerome Powell emphasized that the economy’s resilience allowed them to take more time to assess whether further rate cuts are necessary. Supporting his view, Boston Fed President Susan Collins suggested that the Fed would need to slow down the speed to cut the rate.

Opinions about the rate cut remain divided. Bob Sinche, a strategist at Global Macro & Markets, noted that recent data added less likelihood of immediate rate easing. Similarly, Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, sees a December cut as a small probability. Traders lowered their expectations for cuts in 2025.

Unlike them, Leslie Falconio, UBS Managing Director and Chief Investment Office and Head of Taxable Fixed Income, was positive that the Fed would cut rates in December. Her words in the video highlighted that this week's CPI number favored the rate cut and the Fed needed to make more efforts to approach its neutral target of 3.5%. She also emphasized that the market should pay more attention to actions the Fed would take in 2025.

https://www.bloomberg.com/news/videos/2024-11-15/traders-see-just-50-chance-of-dec-rate-cut-video

Market sentiment remains cautious, with traders scaling back expectations for rate cuts through 2025. Returns in the Treasury market have risen modestly, up just 0.6%. The bond yield curve steepened this week because of market concerns about increased spending by the Trump administration.