The market doesn't think the Federal Reserve will cut rates twice this year in light of a strong finish to the year for jobs. The unemployment rate fell to 4.1% from 4.2% and the economy added 256K jobs compared to 160K expected.
Market pricing now shows that a May rate cut to a range of 4.00-4.25% is now less-likely than a hold, with the probability at 46%. The first fully-priced cut isn't until September and there 31 bps in easing priced in compared to 35 bps pre-data.
What I worry about is that there is some reflexivity between the economy and the bond market. US 30-year yields hit 5% on this, which will push US 30-year fixed mortgage rates above 7%. Aside from a two-month period in late 2023, these are the highest long-term rates since before the financial crisis.
In that sense, the real economy has faced a de facto hike since September rather than the 100 basis points in easing since September. That will cool activity later this year and could also cool equity markets before that.
