Interest rates: Traders, investors jostle over the timing of Federal Reserve, RBA rate cuts

Traders have modestly dialled back rate cut expectations in Australia and the United States after inflation in the world’s largest economy accelerated in February, suggesting the US Federal Reserve could keep interest rates higher for a bit longer.

But while the market is readying for rate cuts, the central bank has warned it could raise rates again as it was yet to be convinced that inflation was on a sustainable path back to its 2 per cent to 3 per cent target.“The bank was right to remind us that there’s still a risk on interest rates in Australia,” Dr Lowe said. “Even though markets are pricing cuts there’s still a risk.”

The core measure also climbed 0.4 per cent in February, compared with forecasts of 0.3 per cent. Annually, the gauge slowed to 3.8 per cent, from 3.9 per cent a year ago, but came above forecasts of 3.7 per cent.As a result, Fed funds futures traders reduced bets that the Fed will cut by June to 79 per cent, from 95 per cent last week.

The Fed is expected to hold rates steady when it meets next week, but the focus will be on whether the central bank will change its interest rate projections for 75 basis points of interest rate cuts this year.that he put the chances of a mild or deeper recession in the US over the next year or two at about 65 per cent, about double the chance of market pricing.“The worst case of recession would be stagflation ,” the banking chief said from New York.

Source: Loan Digest (loandigest.net)

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