TLT Near 2024 Lows Ahead of Fed Rate Decision

It’s Fed week. On Wednesday, the U.S. central bank will make its next interest rate decision and release its latest Summary of Economic Projections. 

A few months ago, investors thought that this would be the meeting at which the Fed made its first rate cut of the year. 

Those hopes nearly vanished at the last Fed meeting in January, when Powell said it was unlikely that the Fed would begin slashing interest rates in March, and that he and his colleagues weren’t in any rush to begin the process of bringing rates down from their peak levels. 

Almost two months later, it looks like Powell and company probably won’t change their tune. If anything, they may seek to dial back rate cut expectations even more after two months of unexpectedly high inflation readings. 

The Fed’s last Summary of Economic Projections released in December had projected that the central bank might cut rates three times in 2024.  

Fewer Rate Cuts This Year?

Some observers of U.S. monetary policy believe that the new projections that will be released on Wednesday could signal fewer cuts—maybe two.  

Markets aren’t on board with that yet. Fed funds futures are pricing in three cuts (though that’s down from the six they had penciled in at the start of the year). 

It’s close, though. The first rate cut is expected to occur in June, according to futures pricing, but the market only puts a 55% probability on that happening.  

If the Fed is more hawkish than anticipated this Wednesday, expect rate cut expectations to be pushed out even further. 

The bond market has already started to account for that possibility. Treasury bond yields climbed close to their highest levels of the year on Friday.  

The iShares 20+ Year Treasury Bond ETF (TLT), one of last year’s most popular ETFs, is down 5.4% year-to-date, and its losses could grow if the Fed grows more hawkish at this week’s meeting.