Markets think falling inflation means rate cuts are around the corner. Here's why that's probably wrong.
"I don't think it's misplaced to think that there are cuts coming. But the speed — July pricing in cuts — that's not happening," Mike Skordeles, head of US economics at Truist Advisory Services, told Insider in an interview.
Meanwhile, the labor market remains robust, setting up the Fed to pause on rates until at least the end of 2023, Skordeles said. There's even a slight chance that another rate hike in June is in play, he added. That's when policymakers thought they got a handle on high inflation after an initial round of rate hikes. Then they cut rates and inflation re-accelerated.
Investors are also watching if Congress will lift the $31 trillion debt ceiling, with a deadline looming as soon as June 1. Failure to do isMeanwhile, a raft of data is due before the Fed meets again June 13-14, including the PCE inflation figure and the May jobs report. Traders foresee a nearly 90% chance the Fed will hold its key rate at 5%-5.25% in June.
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