Rate Cuts, Reluctantly: Reading the Fed's Q4 Signal

The Federal Reserve's most recent communication continues to walk a line between easing financial conditions and guarding against a resurgence in core services inflation.

What changed

Futures markets have converged toward two cuts by mid-year, down from three priced a quarter ago. We think that repricing is roughly correct, but the risk distribution around it is not symmetric.

Our positioning

We remain modestly short duration at the front end, with a bias to add on strength if the next payrolls print surprises to the upside. On the long end, term premium has room to rebuild as issuance remains elevated.

What we're watching

• Core services ex-shelter, month over month
• Continuing claims as a labor-slack proxy
• Any shift in Fed communication around balance sheet runoff