Following a shortened Thanksgiving Week, markets have continued to bolster the narrative that rate cuts are coming sooner rather than later in 2024. Fed Governors on the speaking circuit this week started to allude to the fact that Fed policy might be sufficiently restrictive enough to bring inflation back down to the target (2%). This, accompanied by comments stating that if inflation continues on its downward trajectory, a decrease in rates is warranted. While the Fed Dot Plot has indicated for some time that certain members foresee rate cuts in the latter half of 2024, hearing it on the speaking circuit does lend a little more credibility to the claim.

The PCE deflator number, which is the Fed's preferred gauge of inflation, was reported on Thursday. The report showed year-over-year and month-over-month numbers coming in a tenth lower than expectations. This report will serve as another example to the Fed that its policy is having the desired effect.

 

The increased talk of rate cuts has applied strong downward pressure on yields, with 10-year yields dropping approximately 20bps lower Thursday morning than they were on Black Friday. Fed Chair J. Powell is scheduled to speak on Friday and is expected to try and temper expectations of rate cuts, emphasizing a data-dependent Fed. All of this occurs while some investors now point to lingering high rates as the greatest threat to the Fed's coveted "soft landing."