Wall Street makes bold call on faster interest rates drops than central bank plans

Wall Street traders are making a bold call: they believe interest rates will drop much faster than the Fed is planning, and that belief is already shaking up the ￰0￱ is getting ￰1￱ are running ￰2￱ the bond world is reacting like the cuts have already ￰3￱ are now betting that the Fed’s short-term rate will fall under 3% by the end of ￰4￱ now, it’s just above 4%. That’s a massive change from back in May, when the market only expected rates to land around 3.5% by ￰5￱ bets are based on futures activity tracked by LSEG. What’s more, they’re totally out of sync with what the Fed officials are ￰6￱ to the Wall Street Journal, the central bank’s most recent rate forecast—the so-called dot plot—puts the median end-of-2025 rate at 3.4%.

That’s two fewer quarter-point cuts than what investors are pricing ￰7￱ pull forward expectations while Fed moves slow Stock markets are riding this optimism to record ￰8￱ Street is betting on cheaper money without much recession ￰9￱ some, like Columbia Threadneedle’s Ed Al-Hussainy, say that’s not how the Fed plays it. “I think the market is getting a little bit excited,” Ed ￰10￱ warned that policymakers “are very conservative—they don’t want to overtorque the economy because inflation is still lurking in the system.” The real issue is that rate expectations don’t just sit in ￰11￱ shape everything from Treasury yields to mortgage ￰12￱ 10-year Treasury yield has already ticked down this month, hitting 4.01% before climbing back to 4.14% on ￰13￱ drop has made it cheaper to buy homes, refinance loans, and issue corporate debt—even though the Fed has only cut once this cycle, and it’s barely moved the actual fed-funds rate since last ￰14￱ have misread the playbook ￰15￱ the Fed first started cutting rates in September 2024, Treasury yields had already ￰16￱ feared a recession and thought major easing was on the ￰17￱ strong job reports started rolling in, and expectations were pulled ￰18￱ Trump won re-election that November, markets assumed more spending and inflation were ￰19￱ on the 10-year exploded from 3.6% in September to 4.8% in January, even though the Fed had cut rates by a full percentage ￰20￱ pressure and Fed politics add more noise This time around, things are ￰21￱ is now in the White House and pushing hard for lower ￰22￱ recently gave Stephen Miran—a top economic adviser—a 4½-month seat on the Fed’s ￰23￱ the same time, he’s working to kick out Lisa Cook, a Biden-era appointee who’s facing mortgage fraud allegations, which she ￰24￱ all this, markets aren’t acting like the cuts are ￰25￱ expectations remain steady, which means traders don’t think the Fed is being ￰26￱ Quigley, who runs government strategies at Vanguard, thinks the odds of a huge reversal in bond markets are slim.

“It is possible that we get maybe a bit of a reversal in the rate market,” Brian said . “However, I think the potential magnitude for that type of a move is much smaller than what it was last year.” Still, the pressure’s ￰27￱ growth is ￰28￱ job gains are ￰29￱ could ￰30￱ inflation is slowing ￰31￱ Trump’s tariffs haven’t done much damage yet. “There’s clearly risks to the downside in the labor market here,” Brian added, “and so the likelihood is that the market continues to price in a lower trough rate” than what the Fed’s own forecasts ￰32￱ crypto news deserves attention - KEY Difference Wire puts you on 250+ top sites