Commentary: markets expect the US Fed to deliver multiple rate cuts in 2024
Financial markets expect the US Federal Reserve to cut interest rates by a total of 135bps by the end of 2024. Moreover, the implied probability of at least 75bps cut by the year-end is 81%. Importantly, markets expect to see more rate cuts in the second half of the year (58 bps in 1H24 and 77bps in 2H24).
Generally speaking, equities are likely to benefit if the Fed cuts rates more quickly than it is currently expected. In terms of debt markets, however, any rate cut will most likely translate into lower yields for both government and corporate bonds. As such, investors may benefit considerably by locking in the current yields that stand at historically high levels. Lastly, in order to reduce the reinvestment risk, investors can include bonds with different maturities in their portfolio. Focusing solely on short-term debt securities (e.g., 1-year treasuries) means that after maturity is reached the high yield opportunities may no longer be available to reinvest cash.
