Rate cuts by year-end
- Fed: 123 bps (64% probability of rate cut at the upcoming meeting)
- ECB: 86 bps (99% probability of rate cut at the upcoming meeting)
- BoE: 86 bps (92% probability of rate cut at the upcoming meeting)
- BoC: 79 bps (68% probability of rate cut at the upcoming meeting)
- RBA: 111 bps (92% probability of rate cut at the upcoming meeting)
- RBNZ: 93 bps (78% probability of rate cut at the upcoming meeting)
- SNB: 28 bps (66% probability of rate cut at the upcoming meeting)
Rate hikes by year-end
- BoJ: 5 bps (99% probability of no change at the upcoming meeting)
As you can see, traders continue to bet aggressively on central banks cutting rates fast amid the global stock market rout and recessionary fears. We are already having a tightening in financial conditions and this is going to weigh both on growth and inflation despite the expectations of more inflation from tariffs.
The risk of more inflation could come only if the central banks start to ease aggressively and the current tariffs remain in place. If central banks don't ease fast and the markets continue to sell off, then we will just get a recession and potentially deflation which is a byproduct of such crises.
