Markets have fully digested the Fed's expectation of three rate cuts in a year

Analyst Adam Button said that the current trade environment is difficult, and setting interest rate policy is equally difficult. So far there have been few signs of a more dovish Fed, but St Louis Fed President David Mussallem opened the door yesterday by highlighting some of the downside risks facing the economy. Otherwise, every Fed official has issued similar ‘wait and see’ statements and has highlighted a desire to see 2% inflation before cutting rates. The market did not wait for a stronger signal as it increased the Fed's easing this year to 80 basis points from 40 basis points a few weeks ago. The upcoming March meeting still shows a very low probability of a rate cut, but the probability of a cut at the May meeting is now over 50%. Further out on the curve, terminal rates have fallen by about 50 basis points.