The tug-of-war between market expectations of rate cuts and the Federal Reserve's efforts to manage those expectations persists as we enter the new year. Last week, markets indicated a nearly 75% probability of rate cuts beginning in March, but as of Thursday this week, that probability has decreased to around 60%. This week's release of the most recent Fed minutes adopted a notably more hawkish tone compared to Fed Chair Powell's recent press conference. Consequently, this shift further prompted a reassessment of the bets on rate cuts for 2024, leading to continued increases in yields during the latter part of the week.

Friday was a pivotal day marked on every investor's calendar. Both the nonfarm payroll and unemployment rate exceeded expectations, indicating a relatively resilient labor market despite its perceived weakening over the past couple of months. The pressing question for investors now revolves around whether the Fed will be as inclined to reduce rates given the apparent strength of the economy, as suggested by the data. This ongoing tug-of-war is far from reaching a conclusion, and because of this expect volatility to continue.