In reaction to the banking turmoil, markets have been pricing in larger Fed rate cuts for this year. However, the options market shows that the uncertainty about the Fed’s rate path has jumped, which means that markets have become less clear about the exact rate path, economists at Rabobank report.
It gets cloudy after the pivot
“The banking turmoil has strengthened the market’s belief that the Fed is going to cut rates before the end of the year. However, the implied policy rate path should be taken with a grain of salt, as the uncertainty about the rate path has increased substantially.”
“So markets are pricing in a stronger pivot, but the exact rate path has become less clear.”
