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Rate cuts are now the expectation as fed balance sheet grows

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Quick Take

  • The outlook from markets has completely changed in the past few weeks due to banking failures in the US and EU.
  • The market is now pricing in no more rate hikes but substantial cuts, ending 2023 around 3.75-4%.
  • Four cuts are priced into the rest of the year, while the market suggests a greater than 90% chance the Fed is done raising rates.
  • The fed balance sheet has grown for the past two consecutive weeks; roughly $100 billion was added to the balance sheet this week.
  • While two-thirds of quantitative tightening have been undone in a matter of weeks.
  • This is the third biggest percent change to the fed balance sheet, only being beaten by covid and 2008.
Meeting Probabilities: (Source: CME)
Total Assets percent change: (Source: FRED)
Total Assets percent change: (Source: FRED)

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