- Interest rate cuts are widely anticipated but there has been little discussion around where they’ll eventually end up.
- The median number for the Federal Reserve’s ‘dot plot’ for the Federal Funds rate is 2.5%. Markets are pricing in 3.5% long term.
- In contrast, the Federal Reserve continues to push back against expectations for significant cuts in the near term.
- Longer term in Europe and the UK, interest rate futures put the terminal rate at 2 and 4% respectively. In our view the former seems too low and the latter too high.
- In the week ahead, inflation looks set to be a key determinant of market direction.