Odds for Fed’s Rate Cuts in January Is Rising as US Inches Closer to ‘Soft Landing’

Weaker job data in the U.S. has prompted the market’s expectation for an interest rate cut in January next year to rise as the world’s largest economy is heading toward a soft landing.

There is a possibility that the market will see a Fed’s first rate cut as early as next month. Odds are rising quickly as there is about a 12% chance for a cut as of December 6, 2023, up exponentially from just 2% last week. Meanwhile, the base case shows a 55% chance of a rate cut in March, much faster than June-July in the market forecast just a few months ago.

Earlier this week, the US Department of Labor published its job openings data, which is an indicator of employer demand for workers, that fell by 617,000 to 8.7 million in October, the lowest since March 2021. The market is now seeing the U.S. inching closer to a ‘soft landing’ instead of hard landing, which refers to a recession.

Markets are currently expecting a total of five 25 basis point rate cuts in 2024 as they are fully brought into the Fed’s pivot.

However, all could change as the Federal Reserve has yet to mention the possibility of any rate cuts while saying the inflation remains high.