Back in October of last year, 55% of traders in Fed Funds futures contracts assumed the U.S. Federal Reserve would deliver an interest rate cut this month, bringing the base rate down to the 3.25% level. Today, 90% of them think the Fed will hold rates at 3.5% when it meets in 19 days time.
In other words, another cut from the Fed is off the table, as far as Wall Street is concerned.
Two factors appear to have helped change traders’ minds about the Fed’s plans. And by weird coincidence we’ll get new, market-moving data on both fronts today:
- The Bureau of Labor Statistics will report a new set of nonfarm payroll jobs numbers today. The consensus of analyst estimates is for a gain of 70,000 jobs and unemployment to decline marginally to 4.5%. The new numbers are due at 8.30 a.m. Eastern time.
- The U.S. Supreme Court is expected to rule on whether President Trump’s trade tariff regime is legal. The expectation is that the court will say the White House does not have the right to impose new taxes without Congress’s approval. That would imply that the government might be required to refund companies something like $179 billion in extra tariffs, collected since April last year. The ruling is due after 10 a.m. Eastern.
Wall Street is “on hold” until those numbers come in: S&P 500 futures were flat this morning after the index closed flat at just under its record high yesterday. Markets in Europe and Asia were mostly up this morning.
Trump issued a late plea to the Supreme Court justices last night, on Truth Social. He said, “Our Nation’s Gross Domestic Product (GDP) is predicted to come in at over 5% … a direct result of TARIFFS, which have rescued our Economy and National Security. I hope the Supreme Court is aware of these Historic, Country saving achievements prior to the issuance of their most important (ever!) Decision. Thank you for your attention to this matter!”
(He did not cite a source for his 5% prediction. Bloomberg’s survey of analysts suggests the consensus is for 2% growth this year; Goldman Sachs is more bullish and predicts 2.6%.)
UBS economist Paul Donovan told clients: “Over 70% of tariffs (before recent tariff revisions, delays, and cancellations) are being considered. If these are ruled illegal and trigger rebates, the ruling becomes a de facto fiscal stimulus to the US—even if new tariffs subsequently impose new fiscal constraints on future trade.”
If the labor market is improving and the Supreme Court delivers the expected tariff refunds, the Fed would have almost no justification for adding further stimulus to the economy via a new round of cheaper money.
That’s why ING’s Francesco Pesole thinks there won’t be another Fed cut until at least March. “The unemployment rate may be monitored even more than payrolls, mirroring the Fed’s focus on joblessness. It’s expected to slow back to 4.5% from 4.6%, which, combined with 50-100k payrolls, would be enough to fully rule out a January cut and keep the probability of a March cut below 50%,” he told clients today.
Here’s a snapshot of the markets ahead of the opening bell in New York this morning:
- S&P 500 futures were flat this morning. The last session closed flat at just under its record high.
- STOXX Europe 600 was up 0.42% in early trading.
- The U.K.’s FTSE 100 was up 0.39% in early trading.
- Japan’s Nikkei 225 was up 1.61%.
- China’s CSI 300 was up 0.45%.
- The South Korea KOSPI was up 0.75%.
- India’s NIFTY 50 was down 0.75%
- Bitcoin rose to $90.3K.
