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July Rate Cut Odds Still 100%

Summary:
Despite today's jobs report, Implied July rate cuts odds are still 100% but a second cut is now priced out. A reader asked if I still thought there would be a rate cut in July. The short answer is yes. CME Fedwatch shows the odds of a 50 basis cut declined from 29.2% to 4.9% but I never thought there would be a 50 basis point cut in the first place. The long answer is the odds need to drop to the 50-60% area before there is a reasonable chance of no cut. If the odds drop under 50% then the Fed likely will not cut. What happens depends on economic reports between now and July 31. One good jobs report (see Job Growth +224,000 Tops Expectations, Wage Growth Disappoints), did not change my expectations at all given that I never forecast two cuts. The yield on the 10-year Treasury note is

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Despite today's jobs report, Implied July rate cuts odds are still 100% but a second cut is now priced out.

A reader asked if I still thought there would be a rate cut in July.

The short answer is yes.

CME Fedwatch shows the odds of a 50 basis cut declined from 29.2% to 4.9% but I never thought there would be a 50 basis point cut in the first place.

The long answer is the odds need to drop to the 50-60% area before there is a reasonable chance of no cut. If the odds drop under 50% then the Fed likely will not cut.

What happens depends on economic reports between now and July 31.

One good jobs report (see Job Growth +224,000 Tops Expectations, Wage Growth Disappoints), did not change my expectations at all given that I never forecast two cuts.

The yield on the 10-year Treasury note is barely back above 2%, 2.04% to be precise.

Futures suggest there is a 100% likelihood of a cut, but realistically, it's about 90% now, down from 95%.

Mike "Mish" Shedlock

Mike Shedlock
Mike Shedlock (Mish) is a registered investment advisor representative for SitkaPacific Capital Management (http://www.sitkapacific.com/). Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

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