STIR: July Fed Cut Odds Build To 37.5bp
Apr-25 17:34
- Fed Funds implied rates are ending the week on a softer note today and are now 0.5-2.5bp lower for 2025 meetings with the Dec’25 seeing an almost 5bp intraday swing.
- Cumulative cuts from 4.33% effective: 3bp May, 17bp Jun, 37.5bp Jul and 88bp Dec.
- Today’s U.Mich survey only played a partial role amidst broader moves. 1Y inflation expectations were revised lower in the final April reading but with an intra-month update pointing to further increases ahead.
- The 2025 rate path is back where we ended last week and firmly within the week’s range driven by further challenges to Fed independence before President Trump backtracked saying he had no intention of firing Fed Chair Powell.
- SOFR implied terminal yields have oscillated through the week but at back at ~3.15% (SFRU6) for ~25bp of additional cuts compared to pre-Apr 2 levels.
- Cleveland Fed’s Hammack (’26 voter, dissented against the Dec cut) drew the largest reaction this week, suggesting that May is too soon for a cut but the Fed could cut in June “if we have clear and convincing data”.
- The reaction was mostly reversed though, not least because Gov. Waller (permanent voter) followed by saying we won't see the tariffs in the hard data "until July".
- Indeed, the next cut remains more than fully priced for the July FOMC, with sizeable odds of June but not overwhelming conviction.
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CANADA: BOC Minutes - Tariff Effects May Be Slow To Emerge
Mar-26 17:33
- BoC officials expressed caution about further interest-rate moves when they decided to lower them for a seventh consecutive meeting on March 12, according to minutes published Wednesday, saying it could take time to figure out whether U.S. tariffs will slow economic growth more than they boost inflation.
- Governing Council members "noted it could take time for these opposing effects to materialize," the Summary of Deliberations showed. Providing forward guidance on interest rates didn't make sense and officials "agreed to proceed carefully with further changes to monetary policy."
- Some Bank officials argued for holding rates earlier this month until more information emerged.
- BoC-dated OIS has priced in greater likelihood of another 25bp cut next month although it's still deemed less likely than holding, with 8.5bp vs 6.5bp early today.
US: White House Press Conference Underway Shortly
Mar-26 17:33
White House Press Secretary Karoline Leavitt is shortly due to brief reporters from the White House. LIVESTREAM
- The presser comes with the Trump administration in damage control as the scandal over the leaked Signal chat enters its third day. President Trump yesterday threw his support behind National Security Advisor Mike Waltz and Defense Secretary Pete Hegseth. Expect more of the same from Leavitt as the administration looks to ride out the news cycle.
- Despite White House efforts, the story is likely to run through the week. Axios reports that, according to social media engagement data, the story “has quickly become the top news story of the year worldwide”.
- Leavitt will also face questions over the state of Russia-Ukraine ceasefire negotiations after Trump said yesterday it is possible that Russian President Vladimir Putin is “dragging his feet” on a ceasefire deal.
- There will also be questions on April 2 reciprocal tariffs, with Trump continuing to provide mixed messages over the scope and rate of tariffs and any exemptions that will be offered to trade partners.
- Bloomberg reported this afternoon that auto tariffs could be announced as soon as today.
TARIFFS: EU Expects 20% Tariffs Next Week - FT
Mar-26 17:26
The Financial Times reports that EU trade commissioner Maros Sefcovic expects US President Donald Trump to hit the European Union with tariffs "of about 20 per cent" next week, when he imposes his so-called 'Liberation Day' reciprocal tariffs.
- Sefcovic told officials that Washington’s final plan, "was still unclear but that tariffs would apply equally to all 27 member states after meeting senior administration figures on Tuesday." FT adds that, according to sources, "The US gave no indication there would be any exemptions or exceptions."
- Sefcovic's assessment came after meetings in Washington D.C. this week with Commerce Secretary Howard Lutnick, United States Trade Representative Jamieson Greer, and director of the National Economic Council, Kevin Hasset, during which, according to MNI, "he offered to cut tariffs on U.S. cars to zero and to build more pharmaceutical factories in the U.S." See: MNI: EU's Sefcovic Offers Trade Compromises To Trump- Official
- FT notes: "Brussels has begun to prepare a second tranche of retaliatory tariffs should Trump confirm additional duties next week. The EU has already drawn up a €26bn package after the US hit all steel and aluminium that will apply from April 12."
