Calm down

This has gotten out of hand -- The rate cut pricing just won't stop.

US 2s are down 15.6 bps to 4.55% and Fed funds futures are pricing in 132 bps of cuts next year. Pricing for the first cut on March 20 is now at 73%.

It's tough to square this with a series of Fed officials saying they're still more likely to hike rates and that it's too early to abandon the hawkish bias. If you are to take them at their word, we shouldn't even be talking about cuts until H2.

And that's how markets used to work but it's changed. Ten or 15 years ago, the market parsed Fed comments and then leaned one way or another.

Today, markets expect Fed officials to know exactly what's priced in via the Fed funds futures market. Instead of watching what Fed officials say, it's all about what they don't say. The market has been pricing in cuts and waiting for the Fed to pushback, instead, it was Waller this week (a hawk) came out and said there are good arguments that if inflation continues falling for several more months that you could lower the policy rate.

That led to the market pricing in even more easing and still, no Fed official offered a hard pushback and Barkin address markets directly saying:

"Market bets on 4 rate cuts next year might be based on expectations for soft landing. I hope they are right"

The market is running with that now the Fed is headed into a blackout until December 13.