25bp Cut Not Longer Fully Discounted Through July FOMC

The much firmer-than-expected NFP release and ‘strong’ unrounded AHE figure pulls some Fed rate cut premium out of ’24 FOMC pricing, although some negative revisions to payrolls help temper the move.

• FOMC-dated OIS now shows ~14.5bp of cuts vs. 17.5bp heading into the release.
• The first 25bp cut is no longer fully pieced through the end of the July FOMC, with ~24bp of easing showing vs. ~28bp of cuts ahead of the release.
• Sep ’24 FOMC pricing shows ~40bp of cuts, meaning a 25bp cut is more than fully discounted through that gathering.
• Dec’ 24 FOMC pricing shows ~66bp of cuts vs ~73bp ahead of the decision.
• Those of a dovish disposition may start to enter into received positions in Dec ’24 OIS and longs in Fed funds/SOFR futures given the proximity to recent dovish extremes (which showed ~65bp of cuts).
• The unemployment rate will be key as we move forwards.
• Ahead of the release we noted that with increased focus on immigration, the u/e rate should help guide on broader labor market balance. It wouldn’t take much of an upside surprise to see expectations of an overshoot of the FOMC’s recently lowered 4.0% forecast for end-2024.
• A reminder that our DC policy team has noted that that the Fed won't hesitate to ease if employment falters.
• Fedspeak and geopolitical risk are eyed into the weekend, with Wednesday’s CPI release headlining the economic data calendar next week.