With regards to the outlook for the rest of the year, there’s no other way to describe the current STIRs market other than “getting carried away.” As shown below, the Fed Funds Futures market has moved from pricing a greater than 90% chance of no hikes in 2019 to a more than 50% chance that we will see a rate cut by the end of the year! For context, as recently as mid-October the odds of either one hike, two hikes, or three-plus hikes were all around 1-in-4. While rate hikes being taken off the table for this year makes sense given the Fed’s extremely dovish shift since financial markets collapsed and global data gave up the ghost late in 2018, markets are going considerably further.

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