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TD Securities Adjust Fed Easing Expectations, Expect Five Cuts This Year

FED
  • Notable shifts in the macro data have led TD Securities to assign greater odds to a softer landing scenario for the US economy this year. In this context, TDS are now looking for the FOMC to cut rates five times in 2024, with the Fed funds rate ending the year at 4.00%-4.25%. Prior to the January FOMC meeting, TD had forecast 200bp of cuts in 2024, however, they continue to expect the Fed will reach its neutral policy stance at 2.75%-3.00% by the end of 2025.
  • Given their still very constructive outlook for inflation, TDS still think that May is the most likely meeting where the Fed can begin easing policy. In their view, inflation will likely determine when the Fed will begin easing policy while economic activity will determine the pace and magnitude of rate cuts.
  • A still strong growth profile is currently allowing the Fed to be patient as it seeks to gather further confirmation that core price disinflation is not a temporary phenomenon. However, TD provide the caveat that at the first clear sign of growth deceleration the Fed will react more swiftly toward loosening the policy restraint.
  • On rates, TD now expect 10y rates to finish 2024 at 3.45%. Despite likely shallower rallies in rates, they remain buyers on dips as they view nominal 10s in the 4.25-4.50% range as attractive. TD remain in 5s30s steepeners, 5y swap spread wideners, and 30y swap spread tighteners.
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