The debate over future Fed policy continues to dominate market headlines. This week, retail sales, industrial production, and housing stats exceeded expectations, while initial jobless claims came in softer than anticipated. The data over the last couple of weeks is beginning to depict an economy that remains robust. The question facing investors now is if the economy is as strong as the data suggests, why does the Fed need to cut rates early, as the market has been pricing in?

Throughout the entire tightening cycle, the Fed has emphasized two key factors: achieving its 2% inflation target and data dependency. Once again, Fed Governor Waller, on the speaking circuit this week, reiterated that while he foresees some rate cuts in 2024, he does not anticipate them until much later in the year. Despite the market paring down some of its bets on a quarter-point cut in March they are still priced in at around 50% as we write this.

Some market participants speculate that the Fed might consider an early cut to avoid taking policy action during the US presidential election, thereby preserving its political independence from being questioned. With plenty of data still to be released before the March meeting, the debate on rate cuts is far from over.