We Are All Obsessing Over The Wrong Fed Question

By Eric Peters CIO of One River Asset Management

“Do you mind if we zoom out a bit and look at this from a somewhat different angle,” I asked the Chief US Economist who had come to see the team at our offices in Stamford. The presentation had focused primarily on topics that dominate discussions on trading floors across Wall Steet. Will the Fed cut rates in March or May? Will Powell meet market expectations or fall short? Will inflation grind its way lower by a few tenths of a percent? At any point in time, the market tends to fixate on a few key questions. And it’s always good to know what they are.

As of mid-Dec, the Fed signaled it expected to cut rates 0.75% in 2024. As of Fri, the market expects five 25bp cuts this year, and a nearly 50% chance of a sixth. The Chief US Economist had explained the incremental upside and downside risks to all these things. But by the time you’ve been doing this for a few decades, whether the Fed will cut rates at one meeting or the next seems trivial. Handicapping an incremental 25bps in rates, higher or lower, over the next year seems not terribly worth the effort, particularly given the improbability of being right.