Quick Bites | Using futures to anticipate Fed rate cuts in 2024-25

Futures markets are useful as forecasting indicators, although naturally they are not always correct in their assumptions and can change quickly. The chart below shows that the futures market is anticipating a series of cuts to the US Fed Funds rate commencing in March 2024 and continuing until early 2025.

Interestingly, as the US economy has stayed strong during this recent historic hiking cycle, expectations for a US Federal Reserve (Fed) “pivot” were repeatedly pushed further into the future. The chart uses futures contracts to calculate an implied effective US Fed Funds rate for the next 18 months. This visualisation shows the number of implied hikes and cuts on the right-hand axis (assuming that each policy hike or cut will be uniform at 0.25%).

A true “pivot” isn’t predicted until March next year. And because we are starting at the high rate of 5.5%,  the Fed’s benchmark rate is still seen above 4% as 2025 begins – far higher than many observers would have thought possible a year ago.

Source: MacroBond

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